Nike on Thursday announced new measures to “streamline” its organization after reporting a profit beat for the second quarter.
The athletic giant said in a release that it sees the potential to save up to $2 billion in costs over the next three years by “simplifying our product assortment, increasing automation and use of technology, streamlining our organization, and leveraging our scale to drive greater efficiency.”
These savings will be invested into Nike to “fuel future growth, accelerate innovation at speed and scale, and drive greater long-term profitability,” the company said.
Part of these measures appear to involve layoffs; Nike said it could see pre-tax restructuring charges of about $400 million to $450 million related to the costs of employee severance. This impact is likely to be seen in Q3.
In November, some Nike employees took to LinkedIn to share that they have been laid off from the company as the Swoosh unveiled major C-suite changes across design and marketing. According to the posts, the cuts occurred across talent and product management teams, as well as in contracted roles like copywriting, though Nike did not confirm layoffs at the time.
“We see an outstanding opportunity to drive long-term profitable growth,” said Nike CEO John Donahoe in a statement. “Today we are embracing a company-wide journey to invest in our areas of greatest potential, increase the pace of our innovation, and accelerate our agility and responsiveness.”
Nike EVP and CFO Matthew Friend added that Nike will issue a “softer second-half revenue outlook.”
For the second quarter, Nike reported revenues of $13.39 billion, up 1 percent compared to the prior year. This was in line with Nike’s previously issued guidance for Q2, which projected revenue growth to be up slightly compared to the prior year. It was slightly short of estimates from analysts surveyed by Yahoo, which expected sales of $13.43 billion. Nike’s net income was up 19 percent to $1.6 billion, with diluted earnings per share of $1.03, which was up 21 percent year-over-year. This beat estimates that projected EPS at 85 cents for Q2.
Nike’s gross margin improved in Q2 by 170 basis points due to lower ocean freight costs and strategic pricing actions. The growth was partially offset by headwinds from foreign currency exchange rates and high product input costs.
By channel, Nike Direct revenues were up 6 percent to $5.7 billion. Nike brand digital sales were up 4 percent and wholesale revenues were down 2 percent to $7.1 billion. North America revenues were down 3 percent in Q2, with wholesale in the region down 9 percent. Revenue in Greater China grew 8 percent in the quarter.
Looking ahead, Nike expects Q3 revenue to be slightly negative and Q4 revenue to be up in the low single digits. Full year revenue is expected to be up 1 percent compared to the prior year. Friend said in a call with analysts that the new outlook “reflects increased macro headwinds, particularly in Greater China and EMEA.”
