Shares Plunge Over 12% as Company Lowers Full-Year Guidance
Shares of Nike Inc. plunged over 12% on Thursday after the sportswear giant reported slower-than-expected sales growth in the second quarter and lowered its full-year guidance. The company also announced a new cost-cutting plan aimed at saving $2 billion over the next few years.
According to the earnings release, Nike’s revenue rose 17% to $13.3 billion in the quarter ending November 30th, which was below Wall Street estimates. Sales in North America grew only 13% despite aggressive markdowns and promotions. Lower China demand also impacted results due to COVID-19 restrictions. Overall, net income fell 8% to $1.3 billion or $0.85 per share.
In the earnings call, Nike executives cited “increasing inventory, higher discounts, and currency headwinds” for the reduced outlook. As consumers pull back spending amid high inflation, the company plans to cut costs by $500 million this fiscal year through targeted layoffs and optimizing its organizational structure.
Nike Targeting Up to $2 Billion in Savings Through FY2026
As part of the new 3-year cost savings plan from fiscal 2024-2026, Nike aims to achieve between $1.4-1.8 billion in total reductions.
“The consumer is signaling a slowdown and we need to readjust,” said CEO John Donahoe. “We’re focused on pivoting our resources to align with consumer demand.”
The initiatives will focus on streamlining Nike’s organization, supply chain, and technology infrastructure to improve efficiency. Marketing investments will also shift toward the company’s top growth drivers. Up to 10% of staff could be impacted over the next year based on targeted layoffs.
“We’re reducing complexity, simplifying processes, and prioritizing our resources against our biggest growth opportunities,” Donahoe added.
Lowered Guidance Weighs on Nike Stock Price
Nike now expects full-year revenue growth in the mid-single digits compared to the previous forecast of low double-digits growth. Earnings per share guidance was also slashed to $3.44 from the prior outlook of $3.75-$3.95.
The disappointing results and outlook triggered a massive stock selloff, with Nike shares hitting the lowest level since June 2021. Most Wall Street analysts were caught off guard by the weak quarter and dramatic shift in tone from management.
“It is rare to see Nike miss and guide lower to this degree,” said BMO Capital Markets analyst Simeon Siegel.
The stock plunge also dragged down other athletic stocks like Lululemon, Under Armour, and Adidas. Nike’s problems reflect broader weakness in consumer discretionary spending industry-wide.
What’s Next For Nike
Nike executives stressed that demand remains healthy globally, but cautioned about “increasing volatility” ahead. CFO Matt Friend said it could take a few quarters to clear excess inventory as promotions ramp up to drive traffic.
The company will provide a deeper analysis of the new cost-cutting measures and strategic realignment during its investor day in the fall. But based on the tone of the earnings call, Nike is firmly shifting in a defensive direction to preserve profits amid a weakening economy.
“We’re focused on controlling what we can control in the marketplace,” said Donahoe. “The consumer is still strong. We just have some hard work to do to align supply and demand.”
It remains to be seen whether the bolder promotions will revive sales or how deeper the slowdown spreads across Nike’s global operations. But after averaging 19% annual growth since 2020, the company is clearly girding for leaner times until inflation and consumer spending patterns stabilize. For now, Nike stock will remain under pressure as analysts digest the implications of the reduced outlook.
Table 1. Nike Q2 FY2024 Earnings Results
| Metric | Result | Year-Over-Year Change |
|---|---|---|
| Revenue | $13.3 billion | +17% |
| North America Revenue | $5.6 billion | +13% |
| Net Income | $1.3 billion | -8% |
| EPS | $0.85 per share | -6% |
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