Nike (NYSE:NKE) reported results for its first quarter of fiscal 2022 that disappointed investors. The stock was down 6% on the day following the announcement as the company fell victim to global supply chain disruptions.
Nike noted that sales could have been better had it had the inventory that customers wanted to buy. The coronavirus pandemic and its effects range far and wide. These effects included forced temporary closures of Nike’s manufacturing facilities in Vietnam and Indonesia to help slow the spread of the virus in those countries.
Nike is hit with supply chain difficulties
In its first quarter that ended Aug. 31, Nike reported sales of $12.2 billion and earnings per share of $1.16. Meanwhile, analysts on Wall Street were expecting the company to report revenue of $12.46 and EPS of $1.12. With less inventory in the marketplace, Nike felt less inclined to offer discounts and lower prices on its products, which led to better-than-expected earnings per share.
Still, management noted the supply chain headwinds would start to hurt gross profit margins in the next quarter and for the rest of the fiscal year. The costs to move inventory between its manufacturing facilities to wholesale partners and customers worldwide are increasing.
Labor shortages at ports are delaying turnaround times for ships carrying large quantities of merchandise. For instance, Nike noted that it takes twice as long to get inventory from its manufacturing facilities to North America as before the pandemic.
Moreover, the shutdowns at its facilities in Vietnam and Indonesia have cost the company weeks of production. The Indonesia facility is reopened, but the Vietnam facility remains closed.
Because these effects will persist for at least the rest of its fiscal 2022, management lowered expectations for critical metrics for the next quarter and the rest of the year:
We now expect fiscal 22 Revenue to grow mid-single digits versus the prior year, versus our prior guidance of low-double digit growth, due solely to the supply chain impacts that I just described. 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. Lost weeks of production combined with longer transit times will lead to inventory shortages in the marketplace for the next few quarters.
Nike’s stock price dip is no surprise
Given all the negatives that came out of Thursday’s earnings report, it’s no surprise Nike’s stock closed 6.2% lower on Friday. The stock might have been down further if the company hadn’t reiterated its confidence to reach the long-run targets it presented to investors at the end of fiscal 2021.
Nike’s results are yet another reminder of how difficult running a business during a pandemic can be. There is no telling where an outbreak of COVID-19 infection can occur and what level or degree of disruption it will cause.
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