Nike on Thursday announced plans to cut $2 billion in costs over the next three years, part of an effort to regain lost momentum and spark the company’s sleepy innovation engine.
On a conference call with stock analysts, CEO John Donahoe and Chief Financial Officer Matt Friend said Nike will eventually be a stronger and more efficient company, but that’s less certain than what lies immediately ahead, which is a painful period of corporate belt-tightening.
Nike expects to incur as much as $450 million in restructuring charges in the quarter that ends Feb. 28, mostly from severance costs, suggesting Oregon’s largest company is in the process of parting with a significant number of employees.
To put that cost in perspective, Nike predicted it would incur between $200 million and $250 million in severance costs in 2020 when it eliminated 700 jobs.
“This ruined everybody’s Christmas because nobody knows what’s going to happen,” said Matt Powell, a senior adviser for BCE Consulting. “It’s not good.”
The Oregonian/OregonLive this month reported on ongoing layoffs at the company, but details have remained unclear.
Nike announced the plan as part of a quarterly earnings report. It marked Nike’s first comments about the layoffs. On the conference call, Donahoe and Friend didn’t give details about the number of workers who will be impacted, but Donahoe said the process will be “led with respect and thoughtfulness.”
Nike employs 83,700, including 11,400 at its roughly 400-acre corporate headquarters campus near Beaverton, according to its last annual report.
The executives also didn’t offer specifics about how Nike plans to save $2 billion over the next three years, but they said the company could save money by doing everything from streamlining its organizational chart to reducing the number of Nike products and eliminating layers of management.
“It sounds like they’re going to simplify the business,” Powell said, noting recent talk about Nike possibly scaling down its presence in golf, including maybe splitting with Tiger Woods, as one example of where Nike might cut costs.
For the quarter, which ended Nov. 30, Nike reported $13.4 billion in quarterly sales, a 1% increase, and $1.03 in profits per share, a 21% increase. Nike was roughly in line with Wall Street’s sales forecasts and beat profit expectations.
As part of the earnings report, Nike also lowered its sales guidance to roughly 1% growth for the fiscal year that ends May 31.
Shares were down around 10% in after-hours trading within an hour of the earnings report.
Analysts continue to criticize the company’s product pipeline. Nike’s been in a bit of a slump, having lost market share in running, its legacy category. Its lack of innovation has become a national talking point.
“They haven’t created enough newness,” said Sam Poser, a Williams Trading analyst, in an appearance on Yahoo Finance after the earnings report.
On the earnings call, Donahoe said the cost-cutting will enable Nike to invest more in innovation and other growing areas of the company, such as its women’s category, the Jordan brand and running.
He said the company is getting back on its “front foot,” noting early momentum in trail running and basketball, where Donahoe said there’s been “huge momentum” in the sales of signature sneakers of players Sabrina Ionescu, Jayson Tatum, Luka Doncic and Ja Morant.
The quarter was the midpoint of Nike’s fiscal year. Donahoe said the next two quarters will be the “start of a multi-year product innovation cycle.”
“This new innovation cycle will take some time to fully ramp up,” Donahoe said.
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– Matthew Kish; mkish@oregonian.com