Nike stock drops after warning of supply chain issues as holiday shopping looms

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Nike (NKE) is grappling with issues ranging from a shortage of shipping containers to a shortage of workers, the company said Thursday, adding that it was also facing manufacturing problems due to local closures in its factories in Vietnam and Indonesia.

“We are not immune to global supply chain headwinds that challenge the [manufacturing] and the movement of products around the world,” Chief Financial Officer Matthew Friend said on a conference call.

The problems forced Nike to cut its full-year sales outlook on Thursday, although Friend said “consumer demand has never been higher.”

Supply chain issues have already weighed on the company’s most recent results. Results for the quarter ended August were mixed, with revenue falling short of analysts’ expectations but net profit beating projections, according to Refinitiv data.

Friend pointed out that the company’s performance would have been “stronger if it weren’t for supply chain congestion, resulting in a lack of available supply.”

News of the bleaker outlook sent Nike shares down more than 4% in premarket trading on Friday.

The company now expects revenue this fiscal year to grow in single digits, compared to its previous forecast of double-digit growth the previous year.

Supply chain headaches

According to Friend, “the situation has deteriorated further” in recent months.

Nike made about three quarters of its footwear in Southeast Asia, with 51% and 24% of manufacturing in Vietnam and Indonesia respectively.

But the company has recently been troubled by pandemic-related restrictions, forcing factories to close. In Vietnam, for example, it has lost 10 weeks of production since July.

Meanwhile, the time it takes to get its products from Asia to North America has doubled from about 40 days to 80 days, according to Friend.

“Over the past 90 days, two things have happened in the industry that we did not anticipate. First, the already long transit times have worsened; and second, local governments have imposed closures in Vietnam and in Indonesia,” he told analysts on Thursday.

“As of today, Indonesia is now fully operational. But in Vietnam, almost all shoe factories remain closed on government mandate.

Top toymakers say their products will be harder to find and more expensive this holiday season

The executive noted that there were plans to reopen some facilities in stages, but predicted a “gap will continue until factories are able to reopen and produce products at normal capacity.”

Nike was also scolded in other regions.

In North America, Europe, the Middle East and Africa, his teams have seen transit times soar, largely due to “port and rail congestion and labor shortages.” work”, according to the financial director.

Global supply chains have been disrupted by the fallout from the pandemic, leading to consumer product shortages and making it more expensive for businesses to ship goods to where they are needed.

Unresolved issues and the emergence of new ones, including the Delta variant, mean buyers will likely face higher prices and fewer choices over the holiday season.

Other retailers, such as Adidas (ADDDF), Crocodile (CROSS) and Hasbro (HAS), have already warned of disruptions as they prepare for the crucial year-end period. Booksellers are also urging customers to place their holiday orders early.

Shipping companies expect the global crisis to continue. This massively increases the cost of transporting goods and could add upward pressure on consumer prices.

In response to the crisis, Nike said Thursday it plans to spend more on air freight for the holiday season.

“[We’ll] manage all the levers we can in this limited supply chain environment,” said CEO John Donahoe.

— Hanna Ziady contributed to this report.

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