Nike-Owned Converse May Be About to Make Deep Cuts. Will It Affect Nike's Stock?

Core Insights - Nike is undergoing a significant turnaround strategy under CEO Elliott Hill, focusing on rebuilding retail partnerships, emphasizing sports, and driving innovation [1] - Converse, acquired by Nike in 2003, has been struggling with declining sales, with a 30% drop in revenue to $300 million in the most recent quarter, marking a continued trend of negative growth [2][4] - Layoffs are anticipated at Converse due to prolonged revenue declines, with the CEO indicating difficult decisions ahead, including potential departures of senior executives [4][5] Financial Performance - Converse's revenue decline is part of a broader issue, with sales at a 15-year low, prompting discussions of layoffs as a cost-cutting measure [4] - Converse currently accounts for only 2.5% of Nike's total revenue, suggesting it is a minor component of Nike's overall business [8] - Nike's stock experienced a 2.4% decline, although it is uncertain if this is directly related to the issues at Converse [8] Strategic Considerations - There is speculation about the potential sale of Converse, as Nike has previously divested other brands, raising questions about Converse's future within Nike's portfolio [8][9] - Management has not confirmed any plans to sell Converse but has indicated a need for significant changes to return the brand to growth [9] - Nike anticipates ongoing challenges for Converse throughout the fiscal year, suggesting that investors should remain patient regarding the brand's turnaround efforts [10]