Nike cuts annual sales view on choppy demand, outlines $2-bln cost savings plan

Nike on Thursday trimmed its annual sales forecast on cautious consumer spending, softer online business trends and higher promotions and said it plans to cut supply of key product franchises to manage costs, sending its shares down 11%.

The company said it was seeking $2 billion in savings over the next three years through steps including tightening product supply, reducing management layers, increasing the use of automation and improving its supply chain.

Nike’s wholesale division has been under persistent pressure as retailers keep a tight lid on product stocks and place fewer orders, while price-sensitive consumers cutting discretionary spending has also hit its digital business.

“We are seeing indications of more cautious consumer behavior around the world,” Nike CFO Matthew Friend said, adding that despite traffic growth in stores, the company was still seeing higher levels of promotional activity in its digital business.

The company projected full-year revenue to be up about 1%, down from its prior forecast of mid-single-digit percentage growth. Analysts had expected a 3.8% increase, according to LSEG data.

“Nike’s talking about reducing the number of products … perhaps the company feels there are too many products that are not high-margin and not really generating significant sales,” David Swartz, senior equity analyst at Morningstar, said.

As part of the streamlining, Nike expects about $400 million to $450 million in pre-tax restructuring charges, primarily associated with employee severance costs, in the third quarter.

Sales in Greater China rose 4% in the second quarter, slowing slightly from the 5% increase seen in the first quarter, signaling that demand was yet to stabilize in the market.

The company posted total revenue of $13.39 billion in the second quarter, missing estimates of $13.43 billion.
Nike shares have risen less than 5% this year, compared with a 24% rally in the S&P 500 index, and a 52.5% gain for rival Adidas