Nike plans job cuts and $2.5-billion overhaul as sales slump

Nike Inc. is cutting jobs and embarking on a sweeping overhaul of the business as results deteriorate and test Wall Street’s patience with Chief Executive Officer Elliott Hill.

The company announced a restructuring plan on Thursday that it expects to save $2.5 billion over the next five years. The initiatives were revealed alongside weaker-than-expected sales for the latest quarter and a disappointing outlook for this fiscal year.

Pressure is mounting on Hill, 63, to show progress as he starts his third year leading the company. Sales have steadily declined in China. Sportswear and the Jordan brand have emerged as problem areas, and management said those businesses will need at least another year to improve.

Nike now expects a high-single-digit revenue decline this year. That’s worse than the roughly 2% decline analysts had been projecting and suggests Nike’s total sales are headed for the lowest since the fiscal year ended in May 2020.

“The guidance is pretty ugly,” Adam Crisafulli of Vital Knowledge wrote in a research report. He said management’s inability “to get a handle on the business (it seems like every quarter they are forced to lower the outlook) is going to grate on investors,” and might even lead to talk about replacing Hill as CEO.

Nike shares fell as much as 8.9% as of 9:32 a.m. New York time, touching their lowest intraday since September 2013. At least 10 analysts tracked by Bloomberg lowered their price targets for the stock, which has now fallen 49% this year.

As part of Hill’s turnaround strategy, Nike announced a plan to consolidate its geographic divisions to better serve local markets and speed up the development of new products.

Greater China, which saw its a ninth consecutive quarterly sales decline, is being merged into Nike’s broader Asia Pacific region. Latin America, which was previously grouped with Asia Pacific, will be combined with North America.

Hill said in a memo to employees that the changes and other upcoming moves mean that “Nike will require fewer roles over time.” Decisions on which roles will be affected will be made starting in 2027.

The company expects the plan to generate $2.5 billion in savings over the next five years. There will also be about $1 billion of pretax charges.

Quarterly results

Hill’s initial strategy after taking over in 2024 was to organize Nike’s business around individual sports while mending ties with retail partners and offering fewer discounts. The latest earnings report suggests that deeper changes are required.

Revenue was $11.2 billion in the fiscal first quarter ended Aug. 31, down 4% from the prior year and below the average of analyst estimates. Direct-to-consumer sales missed expectations, as did the footwear division. Poor results at Converse persisted, and the brand has now posted 14 straight quarters of falling sales.

“While Nike’s North America business continues to improve, weakness elsewhere and a much softer fiscal 2027 outlook suggest the turnaround may have stalled,” Bloomberg Intelligence analyst Poonam Goyal wrote in a research note.

In China, Nike faces nimble local competition and a growing preference for national brands. In response, the company is pulling back from third-party websites and reducing promotions.

Nike’s guidance “assumes that China actually gets worse from a revenue perspective for the balance of this year,” Chief Financial Officer Dave Denton said on the company’s call with analysts. “That’s because of some of the actions we’re taking today to make sure that we return this business to health in the long term.”

Sales of Nike sportswear, which includes fashion shoes and apparel, fell in low-double digits last quarter. Those products account for about half of the company’s revenue.

To improve the Jordan brand, which has also lagged, Nike will pull back on the volume and frequency of launches of some retro products. The scarcity is intended to increase demand.

At Converse, performance has been marred by an overreliance on the Chuck Taylor All-Star shoe. A recent ad that evoked the Ku Klux Klan has further roiled the brand and sparked a temporary pause on advertising.

Nike’s leadership team said more details about their efficiency plans and outlook will be unveiled at an investor day next month.

Meier writes for Bloomberg.