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Stock Market Reacts to Weaker Sales Outlook for Nike

Investors reacted negatively to Nike’s weaker sales outlook, causing the stock to plummet more than 10% on Friday. The company highlighted a major cost-cutting initiative that aims to reduce $2 billion in costs over the next three years. The softer revenue outlook of about 1% growth for the current fiscal year, compared to a prior projection of mid-single digits, also contributed to the stock’s decline.

The company attributed the need for cost-cutting to an expected decline in sales, as consumer spending faltered. The earnings report also had a ripple effect on other apparel companies’ stocks, with DickÔÇÖs Sporting Goods falling 3% and Lululemon’s shares dropping more than 1%.

Nike’s CFO, Matt Friend, pointed to indications of more cautious consumer behavior in markets around the world, including China, Europe, the Middle East, and Africa. The company plans to streamline its operations, increase automation, and focus on attracting customers with new products.

Despite a 1% increase in revenue for the fiscal second quarter, concerns about the company’s overall growth remain. Analysts have expressed worry about the lack of innovation and newness in Nike’s product lineup, despite an increase in gross margin to 44.6% from 42.9% a year ago.

While some experts see an investment opportunity in the midst of the market reaction, others, such as Bernstein analyst Aneesha Sherman, remain bullish on the company’s long-term prospects. Sherman believes that Nike’s investments in women’s categories, Jordans, and innovation can help the company rebound from the current challenges.

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