Nike announces new operating model with job cuts to save $2.5 billion by 2031

The American clothing and sports equipment group Nike announced on Thursday a “new operating model” which should notably lead to job cuts, in order to generate around $2.5 billion in savings by its 2031 fiscal year. The group's CEO, Elliott Hill, sent a message to employees explaining at length this operational shift, called “Pace”, which will result in “fewer jobs within Nike”. But, he clarified, decisions concerning the jobs affected will be taken later and any information on the number and geographical areas affected which could come out between now and then in the media in particular will be "speculations", he warned.

During an audio conference with analysts, he explained that he planned “a reduction in levels and the distribution of more resources to countries, territories, cities to give local teams more responsibility for winning in their markets”. In a press release devoted to the results of the first quarter of its shifted 2027 financial year, the group specifies to expect pre-tax charges of around one billion dollars, mainly linked to “personnel expenses”, and around 300 million in severance pay.

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Some $300 million is expected to be allocated in fiscal year 2027 (June to May), he said. The new operating model “includes efforts to modernize Nike's global supply chain, establish a new location in India to enhance the company's capabilities, realignment across three geographies and continued reorganization of the company to reduce costs,” the statement continued. These operational changes are expected to be implemented in fiscal year 2028, according to Elliott Hill. The group also presents its results for the first financial quarter (closed at the end of August), which did not fully meet analysts' expectations.

Decline in sales

Turnover stood at $11.21 billion (-4% over one year) and net profit at $712 million (-2% over one year). The consensus of FactSet analysts expected 11.32 billion and 641 million respectively. Reported per share and excluding exceptional items - market reference value -, net profit came to 48 cents when the consensus expected 44 cents. Elliott Hill told analysts that the results were in line with executives' expectations, saying it was "building Nike for the long term."

However, in the short term, the group saw its activity decline in all geographic areas except North America (+2% over one year). It even suffered a marked fall in China (-22%). The boss, who came out of retirement in October 2024 to return to service at Nike in difficulty, also explained that sportswear and the Jordan brand needed improvements. He assured analysts that progress had been made but changes were still needed “to become a more agile, efficient and athlete-centric company.”

Nike nevertheless managed to improve its gross margin to 42.8% compared to 42.2% a year earlier. For the entire fiscal year 2027, Nike should see its turnover decline by less than 10% and its net profit per share on a comparable basis should be between 1.15 and 1.35 dollars, compared to 2.10 dollars for the fiscal year 2026 and 1.68 dollars expected by the consensus before Thursday's publication. After the audio conference, Nike shares deepened their decline even further (-8.22%) in electronic exchanges, compared to -4% when the press release was published just after the closing of the New York Stock Exchange.