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Rough road ahead for Nike
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March 18, 1998: 5:39 p.m. ET
Company to cut 1,600 workers; outlook grim as future orders fall
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NEW YORK (CNNfn) - Stung by a growing glut of unsold sneakers, athletic apparel retailer Nike Inc. Wednesday announced another round of layoffs and warned more rough times lie ahead.
In its third-quarter earnings announcement, Nike said it will cut about 1,600 workers worldwide. The move includes about 450 job cuts in the United States that Nike announced earlier this week.
To pay for the reductions, Nike is taking a restructuring charge of between $125 million and $175 million against its fiscal 1998 earnings.
Nike said the job cuts, combined with cost-reduction initiatives, should trim expenses by more than $100 million in fiscal 1999.
Nike earned $73.1 million, or 25 cents a diluted share on revenues of $2.2 billion in its third quarter ended Feb. 28. That's substantially lower than the profit of $237.1 million, or 80 cents a diluted share on revenues of $2.4 billion a year ago.
Nike met analysts' consensus of 14 cents a share, but many analysts lowered their projections after the company said it was cutting jobs.
The announcement came after Wednesday's closing bell. Nike (NKE) shares ended up 1-3/4 to 46-1/8. Shares were halted in after hours trading.
Nike says write-downs to hurt margins
The athletic apparel maker also warned its gross margins will be about $100 million lower in fiscal 1998 because of close-out sales and write-downs taken to compensate for slow sales.
Nike said its future orders for apparel scheduled for delivery between March and July 1998 were $4 billion, 9 percent lower than the same period last year. Future orders are considered a key indicator of the company's near term growth.
The decline is the second-consecutive dip and contrasts sharply from previous quarters when future orders were up as much as 66 percent.
Nike Chairman and Chief Executive Officer Philip Knight said the job reductions were difficult to undertake, but are necessary to make the company competitive.
"In spirit, Nike remains a company that is about change. Going forward into this challenging period, we must look to new initiatives, ambitious thinking and new metrics for measuring our success to supplement our core value of creating the best products for athletes," he said.
Looking to 1999, Knight said Nike will face continued earnings pressure from the Asia-Pacific market where lower sales in Japan and Korea combined with the strong dollar, will drag down earnings in those regions.
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