Nike outlines $2 Billion Cost Reduction plan

Nike cut its annual sales forecast on December 21, blaming cautious consumer spending, a weaker online business, and increased promotions, and said it plans to cut supplies of key product lines to manage costs, sending its shares down 11%.

The company stated that it aimed to save $2 billion over the next three years by tightening supply of some products, improving its supply chain, reducing management layers, and increasing the use of automation. Nike's wholesale business has been under constant pressure as retailers place fewer orders in the face of volatile demand. The weakness is also affecting online sales, forcing the company to increase promotions as customers leave. Sales in China have also slowed as the country's economy has faltered.

"We are seeing indications of more cautious consumer behavior around the world," Nike's finance chief Matthew Friend said on a post-earnings call.

Nike projected full fiscal-year revenue to be up about 1 per cent, down from its prior forecast of mid-single-digit percentage growth. Analysts had expected a 3.8 per cent increase, according to LSEG data.

"Nike's talking about reducing the number of products ... perhaps the company feels there are too many products that are not high-margin and not really generating significant sales," David Swartz, senior equity analyst at Morningstar, said.

But Nike said it was also launching fresher styles to attract consumers, building on the success of recent releases like the Sabrina 1, LeBron 21 and Tatum 1 basketball shoes.

"In an environment like this when the consumer is under pressure and the promotional activity is higher ... it's newness and innovation which causes the consumer to act ... that's what's going to pull us through a promotional marketplace," Friend said.