Nike (NKE) late Thursday reported a surprise gain in fiscal second-quarter earnings even as its revenue fell short of Wall Street’s estimates, while the athletic footwear and apparel maker outlined plans to cut costs by up to $2 billion over the next three years.
Earnings rose to $1.03 per share during the three months ended Nov. 30 from the year-ago period’s $0.85, which was the Capital IQ-polled consensus for the most recent period. Revenue edged 1% higher to $13.39 billion but lagged the Street’s $13.43 billion view.
The stock fell 5.5% in after-hours trading activity.
Revenue for the Nike brand added 1% year over year to $12.87 billion, driven by gains in footwear and equipment. North American sales slipped 4%, while Europe, the Middle East and Africa reported a 2% rise.
The company said its cost-savings initiatives will likely include simplifying its product assortment, increasing automation, streamlining the organization, and leveraging its scale “to drive greater efficiency.” A majority of savings will be invested into future growth to enable “greater long-term profitability,” according to the company.
“As part of this commitment, the company is taking steps to streamline the organization, which is expected to result in pre-tax restructuring charges of approximately $400 million to $450 million that will largely be recognized in the third quarter of fiscal year 2024, primarily associated with employee severance costs,” Nike said.
Gross margin improved 170 basis points year over year to 44.6% in the second quarter due to pricing actions and lower ocean freight rates, partially offset by foreign currency fluctuations and higher production costs, Nike said.
“As we look ahead to a softer second-half revenue outlook, we remain focused on strong gross margin execution and disciplined cost management,” Chief Financial Officer Matthew Friend said in a statement.