© Reuters. FILE PHOTO: A bicyclist wearing Nike shoes rides along the Charles River in Cambridge, Massachusetts, U.S., March 18, 2019. REUTERS/Brian Snyder/File Photo
By Deborah Mary Sophia
(Reuters) – Nike (NYSE:) on Thursday trimmed its annual sales forecast blaming cautious consumer spending, a weaker online business and more promotions, and said it plans to cut supplies of key product lines to manage costs, sending its shares down 11%.
The company said it was seeking $2 billion in savings over the next three years through steps including tightening the supply of some products, improving its supply chain, reducing management layers and increasing the use of automation.
Nike’s wholesale business has been under persistent pressure as retailers place fewer orders amid choppy demand. The weakness is also showing up in online sales, forcing the company to boost promotions as shoppers dwindle. Sales in China have also slowed as the economy has stumbled.
“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%, down from its prior forecast of mid-single-digit percentage growth. Analysts had expected a 3.8% 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.
Nike expects upcoming releases in the GT Cut, Book 1 and Kobe lines planned over the next three months to drive sales.
Nike did not elaborate on which product franchises it plans to cut supplies of, but said its iconic lines of sneakers such as Air Force 1, Dunk and Court were all performing well.
The company posted total revenue of $13.39 billion in the fiscal second quarter ended Nov. 30, missing estimates of $13.43 billion. Per-share earnings of $1.03 topped estimates of 85 cents, thanks to lower freight costs and inventories.
As part of the streamlining, Nike expects about $400 million to $450 million in pre-tax restructuring charges, primarily tied to employee severance costs, in the third quarter.
Nike shares have risen less than 5% this year, compared with a 24% rally in the and a 52.5% gain for rival Adidas (OTC:).
