Nike is deepening its restructuring under CEO Elliott Hill as its woes in China intensify, announcing a plan to cut more jobs and shake up its global business divisions after the sportswear giant projected a surprisingly steep drop in full-year revenue.
The tepid forecast on Thursday underscored that Nike's challenges will likely persist for at least several more quarters — especially in China, where sales tumbled 26% on a constant-currency basis in the first quarter — adding to investor unease about the pace of Hill's turnaround. Its shares fell 8.5% in extended trading.
The company has been working to revive growth during the first two years of Hill's tenure by refocusing on key sports such as running and by rebuilding relationships with wholesale retailers. But analysts say its worries have in large part stemmed from a failure to release enough new, compelling products, leading to an uptick in promotions and discounts.
"Our Nike performance business is not yet large enough to offset the pressure we're seeing in Nike sportswear, Jordan brand, and Greater China," Hill said on a post-earnings call. Reviving those weak areas of Nike's business "will take time," he said, pointing to a deliberate reduction in the volume of Jordan retro launches.
The company, which also missed analysts' expectations for first-quarter revenue, unveiled changes to its operating model, including job cuts and a move to three geographic regions — Americas, Asia Pacific and Greater China, and EMEA — instead of four. It plans to open a new campus in India "with strong capabilities and access to talent."
Nike said the company does not yet know the number of roles that will be cut under the restructuring. It will begin notifying employees in 2027.
The program, building on previous rounds of layoffs, including one announced earlier this year, is expected to deliver about $2.5 billion in savings through fiscal 2031, with the majority set to be realized in fiscal years 2029 and 2030.
Nike expects its revenue to decline in the high single digit in fiscal 2027. Analysts, on average, estimate full-year revenue to drop about 2%, according to data compiled by LSEG.
"There is nothing inherently wrong with the (restructuring) plans, but they do suggest that Nike's current model is not really fit for purpose, which in turn raises the question of why these changes were not made sooner," said Neil Saunders, managing director of GlobalData.
CHINA SALES PLUMMET, AGAIN
China, historically a profit-driver for Nike, has shown particular weakness in recent quarters as international rivals and domestic sportswear groups gain traction. Investors remain focused on any signs of improvement, which analysts say will hinge in large part on local product innovation.
Sales in China have fallen for nine consecutive quarters, with the slowdown accelerating in the reported period. The region accounts for about 15% of Nike's annual revenue and is its third-largest market after North America and Europe, the Middle East and Africa.
The company recently said that starting in January, it will pull online sales rights from some of its biggest retail partners in China — a high-stakes bet that tighter control over pricing and distribution can revive its fortunes.
But the digital cleanup will take "multiple seasons," Hill warned on Thursday, adding that near-term revenue and profitability in China will take a hit.
Analysts have also questioned whether the abrupt measures, though likely to help Nike address rampant discounting, will convince Chinese consumers that they want what Nike is selling.
"Nike does not have a channel problem in China, but rather a product problem," BNP Paribas senior analyst Laurent Vasilescu has said in a research note, adding that he was surprised by the company's short timeframe to shut down online wholesale in China.
Sales in North America, Nike's biggest region, rose 2% on a constant-currency basis, in one sign of relative strength in the first quarter. Nike's performance business, specifically, contributed to the growth, benefiting from the World Cup, Hill said.
Adding to the company's challenges, French soccer star Kylian Mbappe ended a two-decade-long partnership with Nike in September and joined Swiss-based rival On.
Nike's quarterly sales fell about 4% to $11.21 billion in the first quarter, compared with analysts' average estimate of $11.32 billion.
Its gross margin, however, rose 60 basis points to 42.8% in the quarter ended August 31, helped by lower warehousing and logistics costs.
Hill said Nike would update its targets through the fiscal year, beginning in November, as it works through the restructuring plan.
The company had withdrawn annual forecasts in October 2024 to provide then new-CEO Hill with some flexibility to assess its business.
S&P Dow Jones Indices removed Nike from the S&P 100 in September as part of a quarterly rebalancing after 18 years in the index of blue-chip companies.
