Nike still confident despite revising short-term outlook due to supply chain issues
Nike (NKE) posted first-quarter earnings results that were stifled by lingering supply chain issues stemming from manufacturing delays due to factory shutdowns in facilities in Asia.
- Revenue: $ 12.2 billion vs. $ $12.47 billion expected, up 16% Y/Y
- Adjusted earnings per share: $1.16 cents vs. $1.12 cents expected.
“As has been the case since the start of the pandemic, I’m proud of the way our entire NIKE Inc. team has delivered through macro volatility,” John Donahoe, president and CEO of Nike, said during a conference call with analysts.
“Over the past 18 months, we’ve demonstrated our ability to manage through turbulence to emerge even stronger and better positioned. And that’s what we’ll continue to do as we navigate through these current supply chain issues. We’ll focus on what we can control while leveraging the many levers at our disposal,” he added.
The supply chain constraints were put into further context by Nike CFO Matt Friend. During the conference call with analysts, he disclosed that the brand has lost 10 weeks of production since mid-July. Friend said that it would normally take approximately 40 days to move product from Asia to North America prior to the pandemic. As a result of container shortages, port congestion, rail congestion, and labor shortages, transit time is now up to about 80 days.
“That gap will continue until factories are able to reopen and produce product at normal capacity,” Friend said. Despite Nike manufacturing facilities being rendered fully operational, nearly all facilities in Vietnam remained closed. Because of this Nike was forced, as some analysts predicted, to revise its short-term outlook.
“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,” Friend said.
“Lost weeks of production, combined with longer transit times, will lead to short-term inventory shortages in the marketplace for the next few quarters. For the balance of fiscal ’22, we expect strong marketplace demand to exceed available supply. We are optimistic inventory supply availability will improve heading into fiscal ’23, against the backdrop of a very strong brand and healthy pull market across all geographies.”
Despite the rare revenue miss, the Swoosh brand’s brass did point to its industry-leading digital prowess.
Nike Direct sales were $4.7 billion, up 25% on a currency-neutral basis. Digital sales increased 29%, or 25% on a currency-neutral basis. Donahoe says that the brand’s digital success is evidence of the product innovation, brand strength, and scale that drive meaningful relationships with consumers.
The Nike SNKRS app, which has been a big part of Nike’s digital dominance, with demand for the app growing more than 130% in Q1. The Nike CEO referenced the recent Off-White Dunk drop and confirmed something that many sneakerheads have long wondered: The company does factor in people who missed out on previous drops in determining which users get exclusive access.
“90% of the invitees for the Off-White Dunk went to members who had lost out on a prior Off-White collaboration over the past two years. The result, the Off-White Dunk end up in the hands of hundreds of thousands of our most-deserving members, creating what we call, exclusivity at scale,” Donahoe said.
“We remain focused and confident in our long-term business outlook … Our competitive advantages, including our innovative product, brand strength fueled by compelling storytelling, our roster of the world’s best athletes and increasingly, our industry-leading digital experiences at retail will continue to create separation. As we drive strong, sustained consumer demand, our confidence remains undiminished,” he said.