Nike Is Shifting Resources to Digital: Layoffs + More Changes Ahead

Nike Inc. is stepping on the gas with its digital-focused business strategy as it navigates a pandemic-plagued retail environment.

The athletic behemoth announced in its fourth-quarter conference call on Thursday that it has begun its Consumer Direct Acceleration phase as part of its Consumer Direct Offense alignment announced three years ago.

With the strategy, Nike intends to ramp up investments in e-commerce and technology, as well as simplify its “consumer construct” of men’s, women’s and kids’ businesses. It also intends to open up to 200 new smaller-format, digitally enabled “monobrand” stores across North America and Europe-Middle East-Africa countries.

“We are building a flatter, nimbler company and transforming Nike faster to define the marketplace of the future,” Nike said in a statement today.

As part of the move, Nike expects to lay off an unspecified number of employees.

“We are shifting resources and creating capacity to reinvest in our highest potential areas, and we anticipate our realignment will likely result in a net loss of jobs,” the company wrote. “We are committed to showing compassion and respect for our transitioning employees through thoughtful and robust severance practices, consistent with our company values, our legal obligations, the competitive marketplace and individual employee situations.”

According to Nike, the layoffs are unrelated to cost savings, but rather related to a redirection of resources.

During the fourth quarter, the Beaverton, Ore.-based company lost 51 cents per share, marking only the second time in eight years that it has missed earnings estimates. Revenues dropped 38% to $6.3 billion, which the brand attributed to the widespread closures of its stores. Analysts were forecasting earnings of 9 cents per share and sales of $7.53 billion.

The closures of its physical stores led Nike to turn its resources to its digital business — a bright spot in its earnings report — which surged a currency-neutral 79% in the fourth quarter and accounted for about 30% of total revenues. (The brand reported strong double-digit increases across all geographies.)

For the fiscal year, its owned digital sales hit $5.5 billion, making up 15% of total revenues. The company set a goal in the 2018 fiscal year to reach 30% e-commerce penetration, both owned and partnered, by 2023. According to Donahoe, Nike will be able to achieve that goal more than two years ahead of schedule and expects its overall business to reach 50% digital penetration.

“This has been an area of investment over the past few years as we built our digital advantage, but COVID-19 has accelerated the pace,” CEO John Donahoe said in the company’s conference call. “As we shift our operating model to fuel this strategy, Nike’s leadership position will become even stronger in the future as sport continues to resonate with consumers amid a global shift towards health and wellness.”

Analysts also continued to be bullish on the company despite the weaker-than-anticipated earnings report: Susquehanna Financial Group’s Sam Poser issued a call-to-action to buy Nike stock and maintained his price target of $130, while JP Morgan’s Matt Boss rated the stock as overweight and established a price target of $118.

“We think short-term headwinds are masking Nike’s long-term potential,” Poser said. “Investors should look past the challenges that Nike will face over the next two quarters and focus on the unmatched global strength of the Nike brand, digital prowess, best-in-class customer engagement, unrivaled product innovation and fortress balance sheet.”

Boss noted, “Nike is the global athletic market leader with diversification across product categories, geographies and distribution. We see Nike’s brand momentum across geographies as sustainable and providing insulation to macro volatility and supporting sustainable, multi-year, high-single-digit top-line growth.”

Looking ahead, Nike expects revenues in the second half of the year to be up significantly versus the prior year with full year sales for 2021 “flat to up.”

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