Nike (NKE.N) recently adjusted its annual sales forecast due to various factors impacting its performance, causing its shares to decline by 11%.
The company attributed these challenges to cautious consumer spending, a less robust online business, and increased promotional efforts.
To mitigate costs, Nike has announced plans to reduce supplies of certain key product lines, aiming to achieve $2 billion in savings over the next three years.
This cost-cutting strategy will involve tightening product supply, optimizing the supply chain, streamlining management layers, and incorporating more automation.
Nike’s wholesale business has been under strain as retailers reduce their orders in response to uncertain demand patterns.
These difficulties have also affected online sales, leading Nike to employ more promotional tactics to stimulate customer interest.
In addition, the company’s sales in China have slowed due to economic challenges in the region.
Matthew Friend, Nike’s finance chief, remarked on the evolving consumer behavior, noting increased caution worldwide.
Consequently, Nike adjusted its fiscal-year revenue projection to anticipate a modest 1% increase, down from the previous mid-single-digit growth estimate.
This revision fell short of analysts’ expectations, who had anticipated a 3.8% rise.
David Swartz, senior equity analyst at Morningstar, suggested that Nike’s plan to reduce its product offerings may stem from concerns about low-margin products that aren’t driving substantial sales.
Despite these challenges, Nike remains committed to innovation and introducing fresh styles to attract consumers.
Recent successes like the Sabrina 1, LeBron 21, and Tatum 1 basketball shoes have laid the foundation for this approach. Nike believes that in a competitive, promotion-driven market, innovation and newness are key drivers of consumer engagement.
Nike is set to launch new products in the GT Cut, Book 1, and Kobe lines over the next three months, with hopes of boosting sales.
While the specific product franchises subject to supply reductions were not disclosed, Nike emphasized that its iconic sneakers like Air Force 1, Dunk, and Court were performing well.
In its fiscal second quarter, which ended on November 30, the company reported total revenue of $13.39 billion, slightly missing the estimated $13.43 billion.
However, the per-share earnings of $1.03 surpassed expectations of 85 cents, largely due to lower freight costs and inventory management.
As part of its streamlining efforts, Nike anticipates pre-tax restructuring charges of approximately $400 million to $450 million in the third quarter, primarily related to employee severance costs.
Despite these challenges, Nike remains a key player in the athletic footwear and apparel industry, with continued efforts to adapt to evolving market conditions.
However, its shares have underperformed compared to the broader market and rival Adidas (ADSGn.DE) in the current year.