Nike Inc. is cutting nearly 1,700 jobs as part of its plan to rein in costs in order to invest more in innovation and to boost profitability in areas like its women’s business and Jordan and Running brands.
The job cuts come two months after the athletic shoe, apparel and accessories giant
NKE,
said during its second-quarter earnings call with analysts that it was targeting $2 billion in cost cuts over the next three years. At the time, Nike said it was looking to streamline its organizational structure by “reducing management layers.”
Read: Nike’s stock dives after company cuts sales outlook, lays out cost-cutting plan
“The actions that we’re taking put us in the position to right-size our organization to get after our biggest growth opportunities as interest in sport, health and wellness have never been stronger,” Nike said in an emailed statement to MarketWatch.
Nike’s stock took a 4% hit in morning trading Friday, enough to pace the Dow Jones Industrial Average’s
DJIA
decliners. The stock’s $4.24 price decline was shaving about 28 points off the price of the Dow, which was down 75 points, or 0.2%.
According to Nike’s latest annual report, the company had 83,700 employees as of May 31. Nike said the job cuts would affect approximately 2% of its workforce, which would translate to about 1,674 employees.
Also weighing on Nike’s stock was a downgrade by analyst Brian Nagel at Oppenheimer, who took his rating down to perform after being at outperform for at least the last three years.
Nagel also cut his price target to $110 from $150, which had been the highest target of the 38 analysts surveyed by FactSet who cover Nike.
He said Nike’s long-term prospects and the stock are still “compelling.” He’s worried, however, that over the next several quarters, sales will be hurt by a combination of “spotty consumer demand, lulls in product innovation and competitive incursions in select categories,” he wrote in a note to clients distributed Friday.
Chief Executive John Donahue had in December highlighted areas of “significant growth potential,” such as Nike’s women’s business and its Jordan and Running brands. He said then, according to a FactSet transcript of a conference call with analysts, that each of those areas “requires focused investment to reach full potential.”
The cost-cutting plan, which would include reducing management layers, increasing automation and streamlining the company’s organizational structure, would “create investment capacity” needed to fund the innovation and growth initiatives, Donahue said at the time.
Oppenheimer’s Nagel said that while Nike “is by no means broken,” it has been muddling through a postpandemic reset in which it has been “hunkering down” and refocusing on core competencies.
“While we very much admire recent efforts of [Nike] management, we are increasingly concerned that stepped-up efforts in areas such as product innovation and digital might take longer than many an investor expects to drive notable and sustained fundamental improvement at the company,” Nagel wrote.
Nike’s stock has lost 6.2% year to date, after sinking 34.9% over the previous two years. The stock’s 29.8% tumble in 2022 was the worst yearly performance since it dropped 34.9% in 1997.
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