When you hear "Just Do It," whose company comes to mind? Hint: It's the Greek goddess of victory. Nike (NKE), the world's largest sneaker brand, is the answer. The 1988 ad campaign slogan, created by Dan Wieden, co-founder of Wieden+Kennedy, was named one of Advertising Age's top five of the 20th century.
Brand Finance's 2023 Annual Apparel 50 Report named Nike the world's most valuable apparel brand for the ninth year. The company, formed on Jan. 25, 1964, as "Blue Ribbon Sports," has been struggling. Nike laid off 1,600 workers, or 2%, and warned of additional cuts.
“To compete, we must edit, shift and divest less vital activity to create greater focus and capacity for what matters most," Nike CEO John Donahoe wrote in a memo acquired by The Wall Street Journal last month. He called the layoffs a “painful reality” that he takes seriously. He blames himself and other executives for the company's poor performance.
In a Dec. 21 fiscal-second-quarter results call, Nike Chief Financial Officer Matthew Friend signaled that the business would make big changes in the coming years to save $2 billion. "In this competitive environment, we need to accelerate our pace of innovation, elevate our marketplace experiences, maximize the impact of our storytelling, and increase our speed and responsiveness, all in service of the consumer," he said.
Nike expects to take a $400 million to $450 million restructuring charge in the second half, mostly for severance costs, in the third quarter. "Today, we know we must be faster, increasing the pace of innovation, increasing the pace of market to consumer, and increasing our agility and responsiveness," Donahoe said. "To drive this, we'll embrace a significant savings plan to create investment capacity to fuel profitable growth at speed and scale
Simplifying the product line, automating and using technology, streamlining the business, and "leveraging our scale to drive greater efficiency." could save money. According to a regulatory filing, Nike signed a 364-day unsecured revolving credit facility with Bank of America and other financial services businesses on March 8 for up to $1 billion, with the option to increase it to $1.5 billion.
The facility accommodates working capital and corporate needs. Nike will report third-quarter results on March 21. FactSet analysts predict 75 cents per share on $12.27 billion in sales. A year ago, it made 79 cents per share on $12.39 billion in sales.
Before Nike's earnings report on March 12, some analysts decreased their price forecasts. RBC Capital, which rates the shares outperform, lowered its price objective by $1.
"We acknowledge competitive dynamics are intensifying, and Nike is transitioning product range rotation," read a research note. "[However,] we remain confident in execution, gross margin tailwinds and outsized marketing firepower which offers a relatively more defensive sporting goods option." Nike should announce $12.17 billion third-quarter revenue, according to the investment firm.
APLA had the strongest increase, followed by larger China, according to RBC Capital. For other regions, the business forecasts “flattish or negative revenue declines.” Nike's price objective was trimmed to $124 from $125 by Morgan Stanley analyst Alex Straton, who maintained an overweight rating.
The firm expects third-quarter and fiscal-year EPS to rise from "a low bar" last quarter. In an earnings preview note, the analyst reminded investors that stock appreciation depends on Nike's long-term growth and profitability targets becoming visible in the fourth quarter or first half of fiscal 2025, "at the soonest." The firm sees "seemingly overly bearish sentiment" against several potential positive catalysts in the next year, but the third-quarter report "likely does little to change the narrative on the stock."
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