Nike stock slumps as supply chain chaos hits holiday sales forecast

Nike stock slumps as supply chain chaos hits holiday sales forecast
Nike Inc. (NKE) shares slumped lower in pre-market trading Friday after the world’s biggest sports apparel company warned that supply chain disruptions, in Asia and elsewhere, would likely impact its holiday sales forecasts.

Nike, in fact, cut its full-year sales forecast to a “mid-single digit” growth rate, from a previous estimate of double-digit gains, owing to supply chain issues that it said were impacting the movement of goods from Asia to North America.

“Consumer demand for Nike remains at an all-time high and we are confident that our deep consumer connections and brand momentum will continue,” CFO Matthew Friend told investors on a conference call late Thursday. “However, we are not immune to the global supply chain headwinds that are challenging the manufacturer and movement of product around the world.”

“Specifically for Q2, we expect revenue growth to be flat to down low-single digits versus the prior year as factory closures have impacted production and delivery times for the holiday and spring seasons,” he added. “Lost weeks of production combined with longer transit times will lead to short-term inventory shortages in the marketplace for the next few quarters.”

Nike shares were marked 6.5 per cent lower in early trading Friday to change hands at $148.97 (U.S.) each, a move that would trim the stock’s six-month gain to around 12 per cent.

Nike said earnings for the three months ending in August, its fiscal first quarter, were pegged at $1.16 per share, up 22.1 per cent from the same period last year and just ahead of the Street consensus forecast of $1.11 per share. Group revenues, Nike said, rose 16 per cent to $12.2 billion, just shy of analysts’ estimates of a $12.465 billion tally.

China sales were up 11 per cent from last year to $1.982 billion, Nike said, while North American sales, Nike’s biggest market, grew 15 per cent to $4.879 billion.

Gross profit margins rose 170 basis points to 46.5 per cent, “led by margin expansion in our NIKE Direct business, a higher mix of full-price sales and favourable changes in foreign currency exchange rates.”

Over the summer, two Nike suppliers in Vietnam, where around half its shoes and a third of its apparel are produced planned production cuts to meet COVID requirements amid a surge in Delta infections in the South Asia region.

“Several of our factory partners in Vietnam and Indonesia were required to abruptly cease operations in the first quarter,” Friend said. “As of today, Indonesia is now fully operational, but in Vietnam nearly all footwear factories remain closed by government mandate.”
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