Nike shares plummeted in premarket trading on Friday, reacting to the company's news of falling revenues and planned layoffs. It's a tough week for the sportswear behemoth, marking its second straight day in the red. Nike revealed a 4% drop in fiscal first-quarter revenues, hitting $11.2 billion.
The downturn in Greater China was the main culprit for the revenue slide, though North American growth helped cushion the blow. Net income took a hit too, dipping 2% to $712 million from last year's $727 million. Elliott Hill acknowledged the hurdles, saying, "We have more work to do in NIKE Sportswear, Jordan Brand and Greater China, and we're taking deliberate actions to strengthen those businesses the right way for the long term."
Nike is bracing for a high-single-digit revenue drop by 2027. Its shares have already nosedived nearly 45% since January. To counter these financial strains, Nike rolled out a new operating model dubbed "Pace, " targeting $2.5 billion in cost savings by 2031. This includes more layoffs starting in 2027.
Addressing the job cuts, Hill said, "This work will result in fewer roles across Nike, and I want to acknowledge that news like this creates uncertainty. I don't take that lightly." The layoffs are part of a larger plan to revamp Nike's global supply chain, restructure into three regions, build a new campus in India, and streamline operations to cut costs.
Earlier this year, Nike already executed two layoff rounds. January saw 775 jobs slashed across U. S. distribution centers, followed by the April axing of 1,400 employees, mainly in the tech division.
Citi analysts are cautious, maintaining a "neutral" view on Nike. They observed that Nike's sales guidance didn't meet market hopes, dubbing the current phase a "cost-cutting story." While management is adjusting to challenges in Sportswear, Jordan, and China, more details on the five-year plan will surface at an upcoming investor day. However, they warned that any real impact from the "Pace" program might not show until 2029.
"It isn't out of the question that Nike can beat some of the guidance they just provided, but there really is no justification (in our view) for Nike to receive a premium multiple versus its growing peers, " the analysts added.
