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Nike shares dive in after-hours trading after it warns of ‘increased macro headwinds’ in Greater China and EMEA

December 23, 2023 | by stockcoin.net

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Nike shares took a steep dive in after-hours trading following the company’s warning of “increased macro headwinds” in Greater China and EMEA. The sportswear giant revealed that it has revised its annual sales forecast and plans to cut $2 billion in costs. As a result, Nike’s shares plummeted by almost 12%. The company now projects just 1% in revenue growth for the fiscal year, a significant decrease from the mid-single-digit percentage growth it previously anticipated. Chief financial officer Matthew Friend attributed the decline to the challenging market conditions in China and Europe, which have impacted sales. Furthermore, Nike reported a 4% rise in Greater China sales and a 2% increase in sales in Europe, the Middle East, and Africa, both falling below expectations. In an effort to combat these challenges, Nike plans to implement $2 billion in cost cuts over the next three years by simplifying its product lineup and increasing automation. Despite the setback, Nike remains a prominent player in the sports apparel industry but faces growing competition from rival brands like Lululemon.

Nike shares dive in after-hours trading after it warns of increased macro headwinds in Greater China and EMEA

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Nike shares dive in after-hours trading

Nike’s shares have experienced a significant decline of almost 12% in after-hours trading due to the company’s warning of “increased macro headwinds” in the Greater China and EMEA markets. This drop in share price comes after Nike announced a revision of its annual sales forecast and unveiled a plan to cut $2 billion in costs.

Nike’s shares down almost 12% in after-hours trading

Investors have reacted strongly to Nike’s announcement, causing a sharp decline in the company’s share price during after-hours trading. This decrease of almost 12% reflects concerns about the company’s future performance and its ability to navigate the challenges presented by the current market conditions.

Company trims annual sales forecast

As part of its updated outlook, Nike has revised its annual sales forecast, projecting just 1% in revenue growth for the fiscal year ending on May 31, 2024. This adjustment is a significant shift from the company’s previous forecast of mid-single-digit percentage growth. Nike attributes this revision to the impact of “increased macro headwinds” in the Greater China and EMEA markets.

Announces plan to cut $2 billion in costs

To mitigate the challenges posed by the current market conditions, Nike has announced a cost-cutting plan that aims to reduce expenses by $2 billion over the next three years. The plan includes streamlining its product lineup and increasing automation in its operations. Nike expects the plan to incur costs of between $400 million and $450 million in the current quarter, primarily due to employee severances.

Nike warns of ‘increased macro headwinds’ in Greater China and EMEA

Nike has cited several factors contributing to its revised sales forecast and decreased performance in the Greater China and EMEA markets.

Nike projects just 1% revenue growth for fiscal year

The company’s updated outlook forecasts only a 1% growth in revenue for the current fiscal year. This conservative projection underscores the challenges Nike anticipates in the coming months.

Chief financial officer blames drop on ‘increased macro headwinds’

Nike’s chief financial officer, Matthew Friend, attributes the company’s drop in performance to the “increased macro headwinds” it faces in the Greater China and EMEA markets. These challenges include a more cautious consumer behavior and an uncertain macro environment.

Lower-than-expected sales in Greater China and EMEA

Despite experiencing a 4% increase in sales in Greater China during the latest quarter, Nike acknowledges that this growth fell short of expectations. Similarly, sales in the EMEA region rose by 2%, which was also below the company’s projections.

Revenue in North America down 4%

Nike’s largest market, North America, has also experienced a decline in revenue, with a 4% decrease compared to the same period last year. This decline in sales further contributes to the company’s challenges in achieving its projected growth.

Total revenue for latest quarter up 1% from a year ago

While Nike’s overall revenue for the quarter ending on November 30, 2023, increased by 1% compared to the previous year, this growth is lower than anticipated. The slower revenue growth reflects the impact of the “increased macro headwinds” that the company now faces.

Net income increases by 19%

Despite the challenges, Nike has managed to increase its net income by 19% compared to the same period in the previous year. This growth in net income showcases the company’s ability to control costs and generate profits, even in a challenging market environment.

Gross margin exceeds analyst estimates

Nike’s gross margin for the quarter reached 44.6%, surpassing the estimates of financial analysts. This positive performance indicates the company’s successful execution of its gross margin strategy, further highlighting its ability to navigate the current market challenges.

Nike shares dive in after-hours trading after it warns of increased macro headwinds in Greater China and EMEA

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China’s retail sales rise, but below expectations

While China’s retail sales experienced an increase of 10.1% in November compared to the same period the previous year, this growth fell below analysts’ expectations. The Chinese market, although recovering, demonstrates a slower-than-hoped-for rebound for companies operating in the region.

China’s retail sales increase by 10.1% in November

Despite not meeting expectations, China’s retail sales still displayed growth, recording a 10.1% increase in November compared to the previous year. This positive growth indicates the resilience of the Chinese market and the potential it holds for companies like Nike.

Slower-than-hoped-for recovery for companies in China

Although China’s retail sales increased, the pace of recovery fell below the hopes and expectations of companies operating in the region. This slower recovery poses challenges for businesses that rely on the Chinese market for growth and expansion.

Consumers looking for more value from goods and services

One contributing factor to the slower recovery in China is consumers’ increased focus on obtaining more value from their purchases. With a cautious approach, Chinese consumers are seeking products and services that provide the most value for their money. This shift in consumer behavior requires companies like Nike to adapt their strategies to meet these evolving demands.

Nike announces $2 billion in cost cuts

To address the challenges posed by the current market conditions, Nike has revealed a cost-cutting plan aimed at reducing expenses by $2 billion over the next three years. This plan incorporates various strategies to enhance operational efficiency and increase profitability.

Plan includes simplifying product lineup and increasing automation

As part of its cost-cutting efforts, Nike plans to simplify its product lineup and increase automation in its operations. By streamlining its product offerings and adopting automation technologies, the company aims to eliminate unnecessary costs and improve overall efficiency.

Expects plan to cost between $400 million and $450 million in current quarter

Implementing the cost-cutting plan is not without initial expenses. Nike estimates that the plan will incur costs of approximately $400 million to $450 million pre-tax in the current quarter. These costs mainly stem from employee severances as the company undergoes restructuring.

Focus on gross margin execution and cost management

Nike intends to address the challenges it faces by intensifying its focus on executing its gross margin strategy and practicing disciplined cost management. By effectively managing costs and optimizing its gross margin, the company aims to maximize profitability, even in a challenging market environment.

Competition from Lululemon and need for product innovation

Nike faces increasing competition from brands like Lululemon, which offers similar activewear products and has been actively expanding in global markets, including China. Nike recognizes the need to innovate its products to appeal to cautious consumers and differentiate itself in a competitive landscape.

Increased competition from Lululemon

Lululemon has emerged as a formidable competitor to Nike in the sports apparel industry. With its expanding product offerings and global market presence, Lululemon poses a significant challenge to Nike’s market share. This increased competition necessitates Nike’s proactive response to maintain its position as a leader in the industry.

Need for product innovation to entice cautious consumers

In an environment where consumers are more cautious and promotional activities are prevalent, Nike acknowledges the importance of product innovation. By continuously introducing new and innovative products, Nike aims to create brand distinction and entice consumers to choose its offerings over those of its competitors. This emphasis on innovation is crucial in navigating the current market conditions successfully.

In conclusion, Nike’s recent decline in share price, revised sales forecast, and cost-cutting plan reflect the challenges the company faces due to “increased macro headwinds” in the Greater China and EMEA markets. While facing competition from brands like Lululemon, Nike remains committed to executing its gross margin strategy, practicing disciplined cost management, and focusing on product innovation to overcome these challenges and drive profitable growth in the future.

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