Nike seeks $2 billion in savings as sales outlook weakens; Shares drop 12% afterhours

Nike's shares fell 11.7% in extended trading after gaining nearly 5% during regular trading on Thursday.

“We’ve taken a more prudent approach to our planning for the balance of the year,” Chief Executive Officer John Donohoe said on the call, adding that Nike is seeing lower levels of growth from e-commerce.

In its statement, Nike said it expects to incur restructuring charges of $400 million to $450 million in the current quarter, “primarily associated with employee severance costs.” Friend said that the company is looking to eliminate layers of management.

Revenue in the quarter was $13.4 billion, roughly in line with average analyst estimate compiled by Bloomberg. Sales in the key Greater China region came in lower than expected, while earnings per share surpassed Wall Street’s estimate.

Nike is looking for savings by simplifying its product lines while increasing automation and boosting technology. “We know in an environment like this, when the consumer’s under pressure and the promotional activity is higher, that it’s newness and it’s innovation which causes the consumer to act,” Friend said.

Investor concerns about China are a key focus for the sportswear company amid fears of a pullback in consumer spending there. As recently as the conference call after the last quarterly report, in late September, Donohoe said Nike had “great confidence about the future and the Chinese consumer in our segment.” The latest results may foster more doubts about a recovery.

Donahoe reiterated Nike’s confidence in China, which has seen slower consumption amid growing unease about the nation’s economic prospects.

“We feel very good about our position in China and our ability to compete, and that has not changed from 90 days ago,” he said.

In one important area, Nike reported an improvement: Gross margin in the quarter was 44.6%, higher than analysts’ estimates.

Management has spent much of the year cleaning up inventory after a glut of merchandise kept new product from hitting store shelves. Inventories fell 14%.