Nike Slashes Jobs, Restructures Divisions Amidst Bleak Sales Forecast

Nike is implementing a significant restructuring, including further job cuts and reorganization of its global business divisions, following a disappointing sales performance and a projected steep decline in full-year revenue. The company's leadership aims to revive growth and address persistent challenges that have impacted investor confidence.

Under CEO Elliott Hill, Nike has been focusing on key sports like running and rebuilding relationships with wholesale retailers. However, the latest revenue forecast indicates these efforts have not yet yielded the desired results, with challenges expected to continue for several more quarters.

Persistent Weakness in Key Markets

Sales in China have been particularly concerning, plummeting 26% on a constant-currency basis in the first quarter. This marks the ninth consecutive quarterly decline in sales for the region, which constitutes approximately 15% of Nike’s annual revenue and is its third-largest market. The company's recent decision to revoke online sales rights from some major retail partners in China is a strategic move aimed at regaining control over pricing and distribution, though analysts question its effectiveness in boosting demand for Nike's products.

Analysts, such as Laurent Vasilescu of BNP Paribas, suggest that Nike's primary issue in China is not with its distribution channels but with its product offerings. The company's struggles have also been attributed to a failure to release compelling new products, leading to increased reliance on promotions and discounts.

Restructuring and Cost Savings

In response to these challenges, Nike is reorganizing its operating model into three geographic regions: Americas, Asia Pacific and Greater China, and EMEA, down from four. The company also plans to establish a new campus in India to leverage its capabilities and talent pool. While the exact number and roles of employees to be affected by the job cuts are yet to be determined, notifications are expected to begin in 2027. This new wave of restructuring builds upon earlier initiatives and is projected to generate approximately $2.5 billion in savings by fiscal year 2031.

Financial Outlook and Performance

Nike anticipates a high-single-digit decline in revenue for fiscal year 2027, a more significant drop than its earlier forecast of a low-to-mid-single-digit percentage decrease in the first half of the fiscal year. The company's first-quarter sales reached $11.2 billion, falling slightly short of analysts' average estimate of $11.32 billion. Despite the revenue shortfall, Nike's gross margin saw an improvement, rising 60 basis points to 42.8% for the quarter ending August 31, attributed to reduced warehousing and logistics expenses.

The company's stock experienced a 4% decline in extended trading following the announcement of its bleak forecast. Earlier in the year, Nike was removed from the S&P 100 index, ending an 18-year tenure among the blue-chip companies.