The company's uber-heavy reliance on Vietnamese factories is to blame for the bleak outlook
Nike (NYSE: NKE) released its first quarter results on Thursday and will have bitter pills to swallow for 2022’s performance due to the impacts of its highly-stressed supply chain.
Overall, revenues were up 16% to $12.2B versus last year and profits were up 23%. That would be impressive in normal years, but was short of the guidance given when the last fiscal year results were reported in June. At that moment in the summer, the world was opening up, families were departing on vacations, the Olympics were still planning on spectators and youth sports were returning at full bore.
Nike Direct business, which includes both physical retail stores and DTC e-commerce, now represents 38.5% of all brand sales. Digital alone was up 25% globally, while in North America, Nike.com was up 40%. Contrast that with the traditional wholesale business selling to the likes of Dick’s Sporting Goods, Foot Locker, Decathlon and other significant retail partners is up only 5%. Nike stock price in after-market trading is down 4.2% from an earlier day high of $159.58.
More Bad News:
- Led by 10 weeks of extensive factory shutdowns in Vietnam, the country represents nearly 50% of Nike’s worldwide footwear production and 30% of its apparel. A staged reopening of the factories is projected to gain speed in mid-October. Vietnam has finally made progress on its vaccination rate the past few weeks as 8% of the population now has received two jabs. Infections this month alone have dropped 70% from the late-August peak.
- Looking toward the holiday season now less than 60 days away, transit times for finished product are currently 80 days versus pre-pandemic transit times of 40 days.
- Supply chain impacts could be significant for up to three seasons, including holiday, spring and all the way into next summer and back to school in 2022.
- Full-year 2022 guidance has been reduced from low-double digit growth to now mid-single digit growth. The second quarter is anticipated to be down due to the lack of product availability because of factory closures and air freight limitations. Air freight investments are anticipated to be significant in order to maximize the holiday selling season and counter the 80-day average shipping times.
Some Good News:
- Tipping the scales back slightly from the supply-chain hits is the low promotional environment and full-price product positively impacting gross margins. The first quarter saw the highest levels of full-price realization the brand has ever experienced stated Mike Friend, Nike’s CFO.
- Price increases on many products are anticipated in the second half of the year.
In short, if you’re planning on sending your loved ones any of Rory McIlroy’s Nike Golf apparel or footwear for the holidays, buy it today as that magic size or color may not be there on Black Friday.