Nike Plans to Cut $2 Billion in Costs; Layoffs Imminent as Strategy Pivot Continues
Nike has laid out a plan to cut up to $2 billion in costs over the next three years in a bid to “accelerate future growth while building a faster, more efficient” organization, executives shared during the company’s fiscal 2024 Q2 earnings call.
The company plans to trim expenses in ways including simplifying its product assortment, increasing automation and use of technology, and leveraging its scale to drive greater efficiencies across the business, although no details on the form these initiatives will take were shared.
An organizational and fiscal restructuring is also in the cards. Specific details on workforce cuts were not shared, but earlier in December The Oregonian reported that Nike had already begun quietly laying off some employees, and executives did note that they expected to incur restructuring charges of approximately $400 million to $450 million in the company’s current quarter, primarily associated with employee severance costs. A leadership revamp is also in the works, with new C-suite appointments in the company’s design, innovation, marketing and tech divisions announced in November 2023.
As part of these shifts, Nike cut its revenue outlook for fiscal 2024, saying that it now expects full-year revenue to grow approximately 1%, compared to a prior outlook of growth in the mid-single digits.
“This new outlook reflects increased macro headwinds, particularly in Greater China and EMEA,” explained EVP and CFO Matthew Friend said on the earnings call. “Adjusted digital growth plans are based on recent digital traffic softness and higher marketplace promotions, lifecycle management of key product franchises and a stronger U.S. dollar that has negatively impacted second-half reported revenue versus 90 days ago.”
In the company’s second quarter, which ended Nov. 30, 2023, Nike saw total revenues increase 1% to $13.4 billion, but this reflects a decrease of 1% year-over-year when taken on a currency-neutral basis. Direct sales revenues were up 4% on a currency-neutral basis to $5.7 billion, while digital sales increased 1% year-over-year (currency-neutral). However, currency-neutral wholesale revenues were down 3% to $7.1 billion, reflecting the continued impact of Nike’s DTC pivot and subsequent reversal. After making an aggressive move toward direct sales in 2020 and 2021, Nike began rekindling wholesale relationships with retailers including DSW and Macy’s last year, marking a major shift back to a more traditional retail strategy.
“Nike’s second quarter financial performance was a turning point in driving more profitable growth,” said Friend in a statement. “As we look ahead to a softer second-half revenue outlook, we remain focused on strong gross margin execution and disciplined cost management.”
The savings that Nike expects to enjoy from its cost-cutting initiatives over the next three years will primarily be invested in fueling future growth and driving greater profitability, executives said on the earnings call.
“We see an outstanding opportunity to drive long-term profitable growth,” said John Donahoe, President and CEO of Nike in a statement. “Today we are embracing a companywide journey to invest in our areas of greatest potential, increase the pace of our innovation and accelerate our agility and responsiveness.”
