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Nike Sales Miss Estimates as Supply Chain Crunch Looms

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September 23, 2021

By Uday Sampath Kumar and Richa Naidu

Sept 23 (Reuters) – Nike Inc missed estimates for quarterly revenue on Thursday, signaling weaker-than-expected demand as it struggles with a supply chain crunch in Vietnam ahead of the crucial holiday shopping season.

The Beaverton, Oregon-based company’s shares, which are down about 9% from their record high hit in August, initially fell 3% in extended trading before paring back to 1.5% lower.

Months long factory closures in Vietnam, where about half of all Nike footwear is manufactured, have piled more pressure on global supply chains, which are already reeling under the impact of the pandemic, with some analysts predicting that Nike will be short of products during the crucial holiday shopping season.

Brokerage BTIG this month downgraded Nike’s stock, saying “the risk of significant cancellations beginning this holiday and running through at least next spring has risen materially for Nike.”

The company is facing at least two months of “virtually no unit production at its Vietnamese factories which accounted for 51% of footwear and 30% of apparel units (43% of total units) last year,” BTIG analysts wrote in a note.

Nike did not address its supply chain issues in Vietnam in its earnings statement, but did nod to higher product expenses primarily due to increased freight costs.

To be sure, other apparel companies including Abercrombie & Fitch and Adidas AG have taken a hit to their businesses due to production issues in Vietnam. Lockdowns in many parts of the country are set to last at least until the end of September. Apparel retailers have also had to grapple with higher raw material and spend more on shipping to get their products in stores on time as the COVID-19 pandemic takes a toll on global supply chains.

Retailer inventories are already trending at historic lows, with data from the Federal Reserve Bank of St. Louis showing that at the end of August, stores had enough merchandise to cover only a little more than 1 month of sales, a sharp drop from the near 2-month lead they had in April last year.

Nike said revenue rose to $12.25 billion from $10.59 billion in the first quarter ended Aug. 31, while analysts on average had expected $12.46 billion, according to IBES data from Refinitiv.

Nike’s net income rose 23% to $1.87 billion, or $1.16 per share, in the first quarter. (Reporting by Uday Sampath in Bengaluru and Richa Naidu in Chicago. Additional reporting by Siddharth Cavale; Editing by Anil D’Silva and Diane Craft)

(c) Copyright Thomson Reuters 2021.

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