Nike says sales will be squeezed during Sneaker shift

Shares fell 6% at 7:42 PM in after-market trading in New York on Thursday. The stock had been down 7.1% this year through the day’s close.

Nike sees revenue and earnings growing next fiscal year despite the first-half slump, excluding the impact of a multiyear cost-cutting plan in the face of weaker demand for its sneakers and apparel.

“We know Nike’s not performing at our potential,” Chief Executive Officer John Donahoe said on a conference call with analysts. “It’s been clear that we need to make some important adjustments.”

Donahoe outlined a restructuring plan in December to cut $2 billion in costs over the next three years in response to weaker sales. Nike said in February that it would slash 2% of its global workforce as part of the plan, with layoffs to take place over two phases.

Donahoe said his priorities are to refocus on sports, develop more new products faster, boost sales with its wholesale partners and advertise more aggressively. Nike has pumped money into advertising to spur demand, spending $1 billion on marketing in the quarter, up 10% from the prior period.

The retailer reported revenue of $12.4 billion for the quarter ended February 29, higher than analysts’ anticipated, bolstered by better-than-expected sales in North America and Greater China. Nike’s sales in the crucial China growth market rose 4.5% in the quarter. In North America, sales of $5.07 billion were up 3.2%.

Management has also been working to get rid of older merchandise to make room for fresh items after an inventory glut plagued the business last year. Inventories fell 13% for $7.7 billion for the quarter, a bigger decline than Wall Street predicted.