(C) Reuters. FILE PHOTO: Nike shoes are seen displayed at a sporting goods store in New York City, New York, U.S., May 14, 2019. REUTERS/Mike Segar/File Photo
By Uday Sampath Kumar and Richa Naidu
(Reuters) -Nike Inc on Thursday cut its fiscal 2022 sales expectations and said it expects delays during the holiday shopping season, blaming a supply chain crunch that has left it with soaring freight costs and products stuck in transit.
Months-long factory closures in Vietnam, where about half of all Nike (NYSE:NKE) footwear is manufactured, have piled more pressure on global supply chains already reeling from the impact of the pandemic.
The Beaverton, Oregon-based company’s shares, which are down about 9% from their record high hit in August, fell 3.3% in extended trading after it said it now expects a mid-single-digit increase in full-year sales growth, versus the low-double-digit increase it had previously estimated.
Nike also said it expects second-quarter revenue growth to be in the range of “flat to down low-single digits versus the prior year” due to factory closures.
“In Vietnam, nearly all footwear factories remain closed by government mandate. Our experience with COVID-related factory closures suggest that reopening and ramping back to full production scale will take time,” Nike Chief Financial Officer Matthew Friend said.
Nike said it had lost 10 weeks of production in Vietnam so far and it would take several months to ramp back to full production.
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.”
“Transit times in North America deteriorated during the last quarter, now almost twice as long as pre-pandemic levels,” Friend said, adding that Nike is facing similar issues in Europe, the Middle East and Africa.
Other apparel companies including Abercrombie & Fitch and Adidas AG (DE:ADSGN) have also 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 had to grapple with higher raw material costs, and spend more on shipping to get their products in stores on time.
Retailer inventories are already trending at historic lows. Data from the Federal Reserve Bank of St. Louis showed that at the end of July, stores had enough merchandise to cover only a little more than a month of sales, a sharp drop from the near two-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.
Nike warns on holiday delays, cuts full-year sales estimate
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