Dive Brief:
- Nike’s Q1 earnings report Thursday proved there’s more work ahead for the sportswear giant, which previewed an unspecified number of layoffs coming next year as the retailer overhauls its operating model.
- Dubbed "Pace," the new restructuring plan includes consolidating Nike's geographic regions into three: the Americas, which will combine North America and Latin America; APGC, which will combine Asia Pacific and Greater China; and EMEA, which will remain as is, covering Europe, the Middle East and Africa.
- At the same time, the company is investing in a more flexible, modern supply chain; opening a Nike campus in Bengaluru, India; and redirecting resources toward product innovation, brand storytelling, consumer connection, sport and growth.
Dive Insight:
If there was any doubt that Nike had a long turnaround path ahead, it dissipated Thursday with Q1 earnings.
Not only was overall revenue down 4% to $11.2 billion, but Converse also continued its streak of monumental declines, falling 28% in the quarter. North America, which had been a problem area for Nike, did notch 2% growth, but that was more than offset by declines in every other region; specifically, Greater China revenue fell 22% in the period.
“One of the central problems is that Nike is a sprawling enterprise and far too many parts of it remain on the back foot,” GlobalData Managing Director Neil Saunders said in emailed comments Thursday. “China and Converse are the two most obvious — indeed, between them they account for almost 86% of the group’s net sales decline.”
Nike’s Sport Offense strategy is working in part, Saunders said, but Nike remains “behind the curve” in many areas.
The Pace restructuring program announced Thursday is meant to help “accelerate the sport offense,” Nike CEO Elliott Hill said on a call with analysts. But the changes will lead to job cuts and point to a longer turnaround than analysts anticipated. The actions needed to restore the business will cause additional pain through Nike’s current fiscal year and the next, executives said on the call.
BNP Paribas senior analyst Laurent Vasilescu noted that Pace is the third restructuring program since fiscal 2024, and the retailer has seen “no operating leverage” from any of them so far. While there’s nothing wrong with the actions of the plan themselves, Saunders added that it feels “a bit like rearranging deckchairs on the Titanic before dealing with the fundamental issues causing Nike to sink.”
At the same time, Nike flagged “significant work ahead” with sportswear, the Jordan brand and China. The company also released guidance for this fiscal year that foresees revenues falling in the high-single digits.
“We know what healthy looks like and we’re taking deliberate actions to get there,” Hill said.
Getting there, though, has been a moving target.
“Two years ago, we heard from new management that the Win Now strategy would be done by the end of 2025, then it was pushed out to the end of 2026. Tonight we didn't hear anything about the Win Now strategy or at least an acknowledgement of a new timeline or goal post,” Vasilescu wrote. “This would suggest that the rightsizing of the business may last for several years to come.”
Needham analyst Tom Nikic added that turnaround visibility is now “very low,” despite some early signs of success in categories like running, training and basketball. Nike also highlighted that the Air Force 1 has regained stability — a goal for several quarters now as the retailer worked to rightsize the inventory of key footwear franchises — but that was paired with the news that the Jordan brand is oversupplied and Nike now needs to pull back on retro product for the business.
“While performance continues to show green shoots we do not believe those green shoots are enough to offset the parts of the business that still show no clear path back to positive territory or a credible plan to get there,” Jessica Ramírez, co-founder and managing director of The Consumer Collective, said in emailed comments. “In the sportswear category in particular the company feels out of touch. At this point we are questioning whether Elliott Hill may be over his head when it comes to this category and how it needs to be approached.”
