Nike announces new round of layoffs, with quarterly results falling short of expectations and revenue showing no signs of improvement; its stock price suffers its worst year in history, nearly halving. | Financial Report Insights

Nike's road to recovery is protracted more than anyone anticipated. With quarterly results falling short of expectations, full-year revenue guidance significantly below market forecasts, and a new round of layoffs looming, the world's largest sportswear brand is facing a confluence of pressures, and Wall Street's patience is rapidly wearing thin.

On Thursday (October 1) local time, Nike released its financial results for the first quarter of fiscal year 2027. Revenue for the quarter fell 4% year-on-year to $11.2 billion, below market expectations; net profit fell 2% to $712 million.

What worries investors even more is the outlook: Nike expects its full-year revenue for fiscal year 2027 to decline by a "high single-digit percentage," far worse than the market's previous expectation of a decline of about 2%. Its full-year adjusted earnings per share guidance is $1.15 to $1.35, also significantly lower than analysts' expectations of $1.68. Following the earnings release, Nike's stock price fell by more than 8% in after-hours trading.

At the same time, Nike announced the launch of a new round of cost-cutting initiatives called "Pace," aiming to save a total of $2.5 billion by fiscal year 2031. The company will also further reduce some of its approximately 73,000 employees and consolidate its global regional structure from four to three.

According to Bloomberg data, Wall Street analysts have lowered their overall rating on Nike to its lowest level in at least 25 years. Bank of America downgraded its rating to "underperform" this week and set a price target of $30. Based on after-hours prices, Nike's stock price has fallen by nearly 50% this year. If it fails to recover its losses by the end of the year, it will have its worst annual performance since 1993.

Quarterly reports under pressure

Nike's first fiscal quarter results fell short of expectations across the board.

Nike's financial report shows that in the first fiscal quarter ending August 31, revenue was $11.21 billion, a 4% year-over-year decrease, below the $11.32 billion expected by FactSet analysts. Adjusted earnings per share were $0.48, slightly higher than analysts' expectations of $0.44, but net income still declined 2% year-over-year to $712 million.

Sales in Greater China declined 26% year-over-year at constant exchange rates, marking the ninth consecutive quarter of decline. CEO Elliott Hill stated on the earnings call that Nike needs to improve its local relevance in China and reduce discounts and promotions. He pointed out that most of its physical stores in the region haven't been renovated in over seven years. Increased competition from local brands and changing consumer demands are eroding Nike's market share.

The sportswear business also performed poorly, with revenue declining by a low double-digit percentage year-over-year, accounting for less than half of Nike's total revenue in the first fiscal quarter. Hill acknowledged, "The overall lack of dynamism in the lifestyle sector is impacting foot traffic. Consumers are indeed cautious, but as an industry leader, we have a responsibility to bring more creativity to sportswear."

The sub-brand Converse also dragged down the overall performance, with first-quarter revenue of $263 million, a year-on-year decrease of about 28%.

Full-year guidance fell far short of expectations, and the recovery timeline was delayed again.

Nike's outlook for fiscal year 2027 disappointed the market, with analysts generally lowering their earnings forecasts.

Nike expects its revenue for fiscal year 2027 (ending May 2027) to decline by a "high single-digit percentage" year-over-year, with adjusted earnings per share guidance of $1.15 to $1.35, compared to analysts' previous forecast of $1.68. This means Nike will lose billions of dollars less in revenue than previously anticipated by the market.

According to Bloomberg, Bank of America analyst Lorraine Hutchinson downgraded Nike's rating from "neutral" to "underperform" in her latest research report, postponing her sales recovery forecast to 2028 and significantly lowering her earnings forecasts for 2027 and 2028. Hutchinson set a price target of $30, representing approximately 16% downside from Friday's closing price of $35.75.

"We believe there are downside risks to both earnings per share expectations and valuations, as Nike's innovation continues to be overshadowed by its stressed classic business, while category and macroeconomic pressures continue to mount," Hutchinson wrote in the research report.

A new round of layoffs and restructuring: The "Pace" plan aims to save $2.5 billion.

Nike announced a new round of cost-cutting measures, which will involve further layoffs and consolidation of its global regional structure.

Nike stated that its new cost-cutting program, "Pace," will generate approximately $2.5 billion in cumulative savings by fiscal year 2031, while incurring approximately $1 billion in pre-tax restructuring costs, primarily related to employee-related expenses, including approximately $300 million in severance costs that were recognized in the previous fiscal year.

The company plans to cut some positions among its approximately 73,000 employees, but has not yet disclosed the specific number of layoffs or their locations. Employees are expected to be notified of these job changes starting in 2027. Meanwhile, Nike will consolidate its global regional structure from four to three to improve operational efficiency.

In addition, Nike plans to build a new campus in Bangalore, India. In an internal letter to employees, Hill described India as "an important growth market and manufacturing hub for Nike, with strong capabilities and human resources."

In an internal memo, Hill stated, "The future belongs to companies that can move faster, get closer to local athletes and consumers, and be more proactive in innovation. To that end, Nike must change and become a more agile, efficient, and athlete-centric company."

Jordan brand is experiencing oversupply; its retro shoe strategy urgently needs to be redesigned.

Nike has admitted to over-reliance on classic retro products and plans to proactively scale back the release of the Jordan brand.

During the earnings call, Hill stated frankly that Nike has an oversupply problem with Jordan brand basketball shoes, saying, "We will return to the scarcity model we created. In short, we have oversupplied iconic retro products and demanded too much from them."

He stated that Nike plans to "deliberately reduce the quantity and frequency of releases of certain Jordan retro models" to rebuild consumer anticipation. "When consumers see the Jumpman logo, it should feel special, it should feel like something they deserve to own," Hill said.

Meanwhile, Nike is also trying to launch new products to attract consumers who value cost-effectiveness. Some new products—such as the Vomero running shoes and the Caitlin Clark signature shoes that sold out quickly after their release on Thursday—have gained market recognition, but analysts generally believe that Nike's overall new product line has not yet formed sufficient market appeal, while competing brands such as On Running and Hoka are continuously vying for consumers' mindshare.

Wall Street confidence falls to a 25-year low, brand image suffers multiple damages.

Analyst ratings have fallen to historic lows, and Nike is facing multiple challenges to its brand image.

According to Bloomberg, Nike's stock rating on Wall Street has fallen to its lowest level in at least 25 years. Nike's stock price has fallen nearly 50% this year, and if it fails to rebound by the end of the year, it will mark its worst annual performance since 1993—the year Michael Jordan first retired from professional basketball. More than two years after the announcement of Hill's return, Nike's market value has evaporated by nearly $77 billion.

At the brand level, Nike has also recently suffered multiple setbacks. According to Bloomberg, both teams in the FIFA World Cup final wore gear from rival Adidas; French football star Kylian Mbappé switched to On Holding; and its Converse brand has been embroiled in controversy due to criticism that its advertising content evokes the history of racial violence.

At the management level, new Chief Financial Officer David Denton joined Nike from Pfizer in August of this year. Bank of America analyst Hutchinson pointed out that Denton took over a situation with "virtually no room for operational error."

"With the new CFO in charge, cost reduction will be a core issue," Hutchinson wrote. "We believe there is no room for cuts in demand creation, but we expect operating and administrative expenses to decline this year, and the cost structure will be examined from a completely new perspective."

Risk Warning and DisclaimerInvesting involves risk; please exercise caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Any investment decisions made based on this information are at your own risk.