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Nike will cut workforce in 2024 after sales drop

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Global sportswear giant Nike has revised its revenue forecast downward for the fiscal year, citing growing consumer hesitancy in spending. 

The company, renowned for its sneakers and apparel, disclosed on Thursday, December 21, its anticipation of subdued sales in the second half of the year. 

To counteract these challenges, Nike plans to implement a cost-cutting strategy.

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It aims to reduce expenses by up to $2 billion over the next three years through organizational streamlining and workforce reduction. 

This announcement led to an almost 11 percent drop in the company's shares during after-hours trading.

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For the fiscal year concluding in May, Nike expects a mere 1 percent revenue growth compared to the previous year.

It is a significant decrease from its initial projection of a mid-single-digit percentage increase. 

In a conference call with analysts, Chief Financial Officer Matt Friend attributed the softened demand to periods outside major shopping events, such as back-to-school shopping and Black Friday. 

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Additionally, weaker traffic on its digital platforms and heightened promotional activity by competitors were identified as contributing factors.

Despite these challenges, Nike remains committed to simplifying its product range and introducing new items that align with consumer preferences. 

Friend added: “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.”

As part of its restructuring plan, Nike expects to incur charges amounting to $400 million to $450 million, primarily recorded in the current quarter. 

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The resultant savings will be redirected towards investments in the women’s and running divisions and the Jordan brand. 

The company also aims to boost technological integration and automation across its operations.

Excluding restructuring costs, Nike maintains its full-year earnings outlook, benefiting from price increases, supply-chain efficiencies, and lower ocean freight rates. 

Facing increased competition from rival brands and concerns regarding its ability to deliver innovative products, Nike CEO John Donahoe remains optimistic about the company's future. 

Early reorganization efforts have reportedly yielded positive results.

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Nike has ambitious product plans linked to the 2024 Summer Olympics, focusing on innovation in basketball and performance-based footwear.

For the quarter concluding on November 30, Nike reported a 1 percent increase in sales compared to the previous year, reaching $13.39 billion—meeting Wall Street expectations. 

Profits rose 19 percent to $1.58 billion, translating to $1.03 per share. 

Despite prevailing challenges, Nike executives view these figures as strong, considering the current spending environment.

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