NIKE Dips on Layoff Plans, Can Latest Strategy Revive Stock?

To counter consumer transitions toward online shopping, NIKE, Inc. NKE yesterday unveiled a new company alignment – the Consumer Direct Offense. Driven by NIKE's Triple Double strategy, this restructuring initiative is aimed at enhancing consumers' experience, by using digital means and catering to them on a personal scale.

However, the swoosh brand company expects these changes and the use of digital platforms to result in a 2% cut in its international workforce. This will lead to the elimination of nearly 1,400 workers. While management did not provide exact details of these layoffs, some analysts expect these to include redundant back-office roles.

With NIKE's quarterly results just a couple of weeks away, plans of these layoffs and restructuring made investors a bit skeptical regarding the stock. Concurrently, NIKE's shares declined 3.2% yesterday.

Nonetheless, NIKE's Triple Double strategy paints a brighter picture for the Oregon-based company. So, let's delve deeper into these strategies and find out if yesterday's downfall was just a short-term pain, making room for long-term gains.

The Consumer Direct Offense

This new alignment focuses on using digital methods for rapid innovation and product development, along with strengthening consumer relations by operating through core regions. As part of this plan, the company aims to fuel growth by catering to consumers across 12 major cities including New York, London, Shanghai, Beijing, Los Angeles, Tokyo, Paris, Berlin, Mexico City, Barcelona, Seoul, and Milan. Spread across 10 core countries, these regions are anticipated to account for more than 80% of the growth forecasted by NIKE, till 2020.

Also, the company is simplifying its geographic structure from six to four, to aid this change and enhance efficiency. The four new regions, under which NIKE will report from fiscal 2018, include – North America, Europe, Middle East and Africa (EMEA), Greater China, and Asia Pacific and Latin America (APLA). Further, these geographic segments will be led by respective VP/GM's – Tom Peddie, Bert Hoyt, Angela Dong and Ann Hebert. These geographic leaders will ultimately report to Elliott Hill – President of Geographies and Integrated Marketplace.

A Glimpse of Triple Double

This plan is actually inspired from NIKE's previously announced Triple-Double strategy that is aimed at doubling innovations, speed and consumer relations.

NIKE aims to hasten its innovation platform, and curtail its styles by roughly 25%, in an attempt to offer better choices. Moving on, the company intends to double its speed by cutting production cycle by about 50%. In this regard, the company is progressing well with its Express Lane that makes and updates products quickly, as per the evolving consumer needs.

Nike plans to improve consumer relations through its new Nike Direct organization, which will bring its website, Direct-to-Consumer retail, and Nike+ digital products together. Notably, this union of physical and digital retail is likely to enrich consumers' experience, alongside solidifying Nike's membership experience on an international level.

Can these Strategies Boost NKE Stock?

NIKE has underperformed the Zacks categorized Shoes & Related Apparel industry in the last three months. Evidently, shares of the company tumbled 8.2%, as compared with the industry's drop of 4%. We believe a tough retail backdrop, stiff competition and foreign currency headwinds have been troubling NIKE's stock.

Talking of the retail landscape, consumers' rapid shift toward online shopping is troubling most companies, as they are struggling to keep pace with the online players in the industry. Consequently, retailers like Macy's, Inc. M and American Eagle Outfitters Inc. AEO are concentrating on enhancing their omni-channel capabilities and optimizing store fleet.

Well, these obstacles, along with mounting competition from sporting goods big-wig Adidas AG ADDYY seemed to have influenced the aforementioned move. We believe that streamlining operations and undertaking digital endeavors should drive NIKE's performance in future, and help it gain investors' confidence.

NIKE currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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