According to Information Week, Nike CEO Philip Knight is saying that their earnings this quarter will suffer due to deployment glitches of their new i2 software. Nike blames the $400 million demand- and inventory-management system for causing the overproduction of some shoes and underproduction of others. In a harsh critique, Knight said, This is what I get for $400 million?
According to Nike, it will take the company six to nine months to sell the overproduced shoes, a mistake that could cost them up to $15 million in profits this quarter. Nike spokesmen say that beginning last summer, when the i2 system was implemented, some orders were placed in both the old and new systems, creating duplicate orders. The new system also let orders fall through the cracks', forcing Nike to make certain shoes at the last minute and ship them by air freight. Nike CFO Don Blair claims that both problems will pull down third-quarter profits considerably.
But the extent to which i2 is responsible for Nike's earnings losses is questionable. Nike did not divulge any numbers on the sluggish U.S. economy, but despite the hyped blame on i2 -- did say that its problems were largely because of weakness in our U.S. footwear revenues.
But whether i2 is really to blame for Nike's losses, investors reacted to the hype, bailing on i2 in a flurry of fear. Following the Nike statement, shares of i2 dropped to a low of $26.50 on Wednesday, down even further from Monday's close at $35.50. As little as a month ago, i2 was trading at over $60.
Amid all the gloom, i2 might be slightly comforted by the fact that Philip Knight did say that he believed the software would result in improved profits for Nike in the long run. Of course, that long run might seem more like a marathon before i2's stock rebounds; I hope they're wearing good shoes.