Nike is starting to witness a decline in market share, as noted by analysts on Friday. The sportswear giant is facing competition from emerging sneaker brands such as On and Hoka. Following a downward revision in its annual sales forecast, Nike experienced an 11% drop in its stock value. To counter this trend, analysts recommend that Nike invest in revitalizing its styles and introducing more innovative designs.
Attributing the subdued forecast to prudent consumer spending, the primary manufacturer of the Air Jordan 1 shoe announced on Thursday a $2 billion cost-saving initiative. This signals a strategic shift towards prioritizing profitability over mere sales growth.
Continue Exploring: Nike adapts to shifting market dynamics: Yearly sales outlook revised, shares drop 11%
European competitors Adidas and Puma both saw declines of 5% and 7%, respectively, in their closing stock prices. Simultaneously, shares of Lululemon and Under Armour experienced drops of around 1% and 4%.
“Nike needs increased and improved marketing investments while HOKA, On and Lululemon are scaling further with increased customer acquisition and retention,” TD Cowen analysts said after downgrading the stock to “market perform” from “outperform”.
Additionally, Nike announced that it anticipates incurring employee severance costs ranging from $400 million to $450 million in the ongoing quarter. However, the company did not provide details on the exact number of jobs that would be affected.
With 83,700 employees as of the end of May this year, the company did not promptly respond to an inquiry regarding comments on the impending job cuts. It’s worth noting that in 2022, Nike had a workforce of 79,100 employees.
The company unveiled plans to simplify its product assortment, increase automation, and scale product innovation in the women’s and Jordan categories, as well as on products priced below $100, particularly in the running category.
“I think it makes sense for them to focus on fewer number of products that can resonate stronger with consumers. And doing so will help them not only manage their inventory, but also their profitability,” Raymond James analyst Rick Patel said.
A minimum of six brokerages reduced their price target on Nike, and two downgraded the stock.
“While we think this (cost-saving plan) is a positive shift, it will take time to scale newness and innovation, and a soft macro will further pressure results in the meantime,” Piper Sandler’s Abbie Zvejnieks said. The brokerage cut its price target to $107 from $112.
Trading at $109.35, Nike shares, which have experienced a roughly 5% increase this year, carry a forward price-to-earnings ratio for the next 12 months of 30.01. In comparison, Adidas has a ratio of 44.48, a common benchmark for valuing stocks.