Nike Plans to Cut $2 Billion in Costs Over the Next 3 Years

By Jace Dela Cruz

Dec 22 2023, 00:19 AM EST

Sportswear giant Nike has unveiled plans to slash costs by approximately $2 billion over the next three years, resulting in a 10% decline in its stock hours after the announcement.

According to CNBC, while Nike shares had experienced a 4.7% increase year-to-date until Thursday's close, they lagged behind the gains of the S&P 500 for the year. The announcement also had a ripple effect, causing a roughly 7% drop in retailer Foot Locker's shares, heavily reliant on Nike products.

Nike Plans to Cut $2 Billion in Costs Over the Next 3 Years — Sportswear giant Nike has unveiled plans to slash costs by approximately $2 billion over the next three years. Scott Olson/Getty Images

Sales Outlook of Nike

The decision to cut costs follows a revision of Nike's sales outlook, with the company now anticipating full-year reported revenue growth of around 1%, compared to the previously projected mid-single-digits.

The adjusted outlook for the current quarter, which spans the latter half of the holiday shopping season, predicts slightly negative reported revenue as it contends with challenging year-over-year comparisons.

On the other hand, fourth-quarter sales are expected to witness low single-digit growth. In a statement, Nike outlined its strategy for achieving the targeted $2 billion in cumulative cost savings over the next three years.

The company said the areas of potential savings include simplifying product assortment, increasing automation and use of technology, organizational streamlining, and leveraging its scale to drive greater efficiency.

Nike noted that a significant portion of these cost savings would be reinvested to fuel future growth, expedite innovation, and enhance long-term profitability.

Nike Commits to a Streamlined Organizational Structure

As part of this commitment, the company is streamlining the organizational structure, which is seen to result in pre-tax restructuring charges of about $400 million to $450 million that will substantially be recognized in the third quarter of fiscal year 2024, primarily connected with employee severance costs.

"We see an outstanding opportunity to drive long-term profitable growth," said John Donahoe, President and CEO of NIKE, Inc.

"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," he added.