Nike, the renowned manufacturer of Air Jordan basketball shoes, is set to reduce its workforce by around 2%, amounting to more than 1,600 job cuts. The news was reported by CEO John Donahoe in a memo, as mentioned in The Wall Street Journal.
Strategic focus on key areas
With the aim of investing further in vital sectors, Nike intends to allocate the savings from these job cuts into running, women’s apparel, and the Air Jordan brand. It is important to note that these cuts will not affect employees in stores, distribution centers, or the innovation team.
Nike's perspective
Regarding the job cuts, Nike expressed its commitment to staying proactive. The company stated via email, "Nike’s always at our best when we’re on the offense." Furthermore, Nike emphasized that these actions will allow them to optimize their organization and seize the significant growth opportunities driven by the heightened interest in sports, health, and wellness.
Impact on stock
Despite the announcement, Nike's stock did not fare well. As the market opened, shares dropped by 2.8% to $103.32. Although the stock had experienced a 5% rise over the past month, it remains 15% lower than it was a year ago.
Analysts' perspective
Analysts at Oppenheimer, led by Brian Nagel, downgraded Nike from Outperform to Perform. Furthermore, they adjusted their price target for Nike to $110 from $150.
Nike Facing Challenges in Shifting Consumer Landscape
Analysts at Oppenheimer express their growing concerns about Nike's top-line trends in the near future. While the popular sports brand is not considered broken, both the company and its brand are undergoing a transition period. These concerns arise as Nike has observed consumer caution, particularly in Europe and China, where economic growth has been lackluster. Furthermore, Nike is grappling with intense competition and a change in consumer spending habits, which now prioritize experiences over material goods.
In an effort to address these challenges, Nike had previously announced plans to reduce expenses by $2 billion over the next three years, a decision that was partly indicated in December when the company revised its revenue outlook downwards.
The recent U.S. retail sales report for January further emphasizes the difficulty faced by Nike, revealing a larger than anticipated drop during that month.
It is worth noting that Nike is not the sole iconic sports-clothing brand encountering hurdles. Adidas surprised markets by lowering its guidance earlier this month, leading to a 7% decrease in its shares this year. Similarly, Under Armour witnessed a 4% decline in its shares, while Lululemon saw a drop of 10%. Puma has been hit hardest with a significant plunge of 19% since the start of the year.
Overall, Nike's challenges are reflective of the wider shifts occurring in the consumer landscape. As the competition intensifies and consumer preferences evolve, Nike must navigate these changes to maintain its market position.
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