Nike (NKE -2.98%) shareholders were seeing red on Friday morning. The stock was down by 4% as of noon ET compared to a 0.2% drop in the wider market, according to data provided by S&P Global Market Intelligence. That decline added to a tough period for shareholders in recent months. The footwear giant is down 20% in the past year, while the S&P 500 has soared 21%.
Friday’s decline was sparked by news that Nike is laying off part of its workforce, potentially reflecting further demand weakness ahead.
Making more cuts
When Nike delivered its fiscal 2024 second-quarter results in December, management warned investors that demand was already decelerating heading into the holiday shopping season. The stock fell at the time as management projected a “softer second-half revenue outlook” for the final six months of its fiscal 2024. The company also reported a 1% sales decline in its fiscal Q2 (which ended Nov. 30).
Demand trends may have worsened since then. Nike is cutting 1,600 jobs — about 2% of its workforce — according to a Wall Street Journal article that was published before the market opened Friday. News like this sometimes can lift a stock because a smaller payroll can mean higher profitability and stronger earnings ahead due to a focus on efficiency. However, in this case, the layoffs have investors worried about worsening demand and pricing challenges. Nike’s retailing partners appear to be slowing their ordering rates and choosing to hold less inventory while cutting prices in many cases. Nike has been reducing its production pace for most of the past year, but apparently, further cuts are required.
Looking ahead
Investors will likely have to wait for clarity until Nike’s fiscal Q3 report, which is expected in late March. That report should detail Nike’s full cost-cutting efforts, along with updates on its inventory levels and pricing. In the meantime, it seems likely that it will be several quarters at least before the company can return to an offensive growth footing. Nike’s main path to expanding sales is a stepped-up pace of new product launches. These releases will fare better once consumer spending patterns are rising again, and that rebound doesn’t seem imminent.
Demitri Kalogeropoulos has positions in Nike. The Motley Fool has positions in and recommends Nike. The Motley Fool recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
