Nike lowers sales outlook due to fluctuating demand, reveals $2 billion cost-saving strategy

On Thursday, Nike reduced its yearly sales outlook due to careful consumer spending, milder online business trends, and increased promotions. The company also declared its plan to decrease the supply of major product franchises to navigate costs, causing its shares to fall by 11%. In an attempt to save $2 billion over the next three years, Nike intends to employ tactics such as tightening product supply, decreasing management layers, augmenting the use of automation, and enhancing its supply chain. The firm's wholesale division has been continuously strained as retailers strictly regulate product inventories and place fewer orders. Rising price-conscious consumer behavior that involves reducing discretionary spending has affected Nike's digital business too.

'Evidence of increased cautious consumer behavior worldwide is emerging,' stated Nike CFO Matthew Friend, also noting that the company was witnessing raised promotional activity levels within its digital business, despite growing in-store traffic. Now, Nike forecasts a yearly revenue growth of about 1%, a decrease from its earlier prediction of a mid-single-digit percentage growth. However, LSEG data predicted a rise of 3.8%.

'Nike's conversation is steering towards reducing the number of products... perhaps the company senses an excess of products that fail to generate substantial sales or high margins,' commented David Swartz, a senior equity analyst at Morningstar. In this streamlining effort, Nike anticipates pre-tax restructuring charges of approximately $400 million to $450 million, primarily due to employee severance costs, during the third quarter.

Nike reported a slow increase in sales in Greater China, climbing by 4% in the second quarter, slightly less than a 5% rise in the first quarter, indicating that the market hasn't achieved stability yet. The company announced a total revenue of $13.39 billion in the second quarter, slightly under the expected $13.43 billion. Despite this, Nike's shares have grown by less than 5% this year, far below the S&P 500 index's growth of 24% and competitor Adidas' remarkable 52.5% gain.