Nike shares tumble after first quarter results reveal supply chain disruption



Nike (NYSE: NKE) released results for its first quarter of fiscal 2022 that disappointed investors. The stock was down 6% the day after the announcement as the company suffered from disruptions in the global supply chain.

Nike noted that sales could have been better if they had had the inventory that customers wanted to buy. The coronavirus pandemic and its effects are very varied. These effects included the forced temporary shutdown of Nike’s manufacturing facilities in Vietnam and Indonesia to help slow the spread of the virus in those countries.

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Nike faces supply chain challenges

During its first quarter ended Aug.31, Nike reported revenue of $ 12.2 billion and earnings per share of $ 1.16. Meanwhile, Wall Street analysts expected the company to report revenue of $ 12.46 and EPS of $ 1.12. With less inventory in the market, Nike felt less inclined to offer discounts and lower prices on its products, which led to better than expected earnings per share.

Nonetheless, management noted that supply chain headwinds would begin to hurt gross profit margins in the next quarter and for the remainder of the year. The costs of moving inventory between its manufacturing facilities and wholesale partners and customers around the world are increasing.

Labor shortages in ports delay turnaround times for ships carrying large quantities of cargo. For example, Nike noted that it took twice as long to get inventory from its manufacturing facilities to North America as it did before the pandemic.

In addition, the shutdowns of its facilities in Vietnam and Indonesia cost the company weeks of production. The facility in Indonesia is reopened, but the facility in Vietnam remains closed.

Since these effects will persist for at least the remainder of its 2022 fiscal year, management has lowered expectations for critical actions for the next quarter and the rest of the year:

We now expect FY22 revenue to grow one-digit average year over year, compared to our earlier forecast of double-digit growth, only due to impacts on the supply chain that I have just described. Specifically, for the second quarter, we forecast stable or below single digit revenue growth from the prior year as plant closures impacted production and delivery times for the holidays and spring. Lost weeks of production combined with longer transit times will cause inventory shortages in the market for the next several quarters.

Nike’s stock price decline is no surprise

Considering all the negative aspects of Thursday’s earnings report, it’s no surprise that Nike stock closed down 6.2% on Friday. The stock could have fallen further if the company had not reiterated its confidence to meet the long-term goals it presented to investors at the end of fiscal 2021.

Nike’s results are another reminder of the difficulty of running a business during a pandemic. It is not known where an outbreak of COVID-19 infection can occur and what level or degree of disruption it will cause.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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