Nike Lays Off 775 U.S. Employees in Cost-Cutting Push Amid Turnaround Struggles

What happened

Nike has started 2026 by laying off 775 employees in the United States, citing a shift toward supply chain automation. This move aligns with the company's broader strategy to cut costs and realign operations, as highlighted in recent filings addressing tariff pressures and margin erosion. It comes against a backdrop of significant challenges, including a $1.5 billion annual tariff shock, double-digit revenue declines in Greater China, and gross margins compressed to around 40-41%. While automation may offer long-term efficiency gains, it underscores the aggressive measures Nike must take to combat profitability issues in a strained environment. The layoffs reflect ongoing restructuring efforts but do not signal an immediate resolution to the structural problems that have led to shrinking earnings and a premium valuation.

Implication

Nike's job cuts aim to reduce operating expenses and support margin repair, a critical need given gross margin declines from tariffs and promotional intensity. However, with ongoing double-digit China declines and a $1.5 billion tariff drag, cost savings from automation may be offset by these structural issues, limiting near-term earnings inflection. Investors should view this as part of a multi-year turnaround, not a quick fix, aligning with the DeepValue report's assessment of limited upside over 6-18 months. While efficiency improvements could help, the layoffs risk morale and execution amidst already strained operations, such as weak Direct channel performance. Ultimately, the move underscores the necessity of aggressive actions, but the valuation still assumes a faster recovery than fundamentals justify, maintaining de-rating risk if margins and China trends disappoint.

Thesis delta

The layoffs do not shift the core investment thesis; they confirm management's emphasis on cost reduction amid ongoing struggles with tariffs, China, and margin compression. This reinforces the need for aggressive measures to combat profitability erosion, but the fundamental issues remain unchanged, with no evidence yet of a turnaround in key metrics like gross margin or China sales. Therefore, the 'Potential Sell' rating and cautious stance from the DeepValue report remain appropriate, as the news highlights execution risks rather than a material improvement in the business outlook.