A lower sales forecast shows the growth in China with a bottlenecked Supply chain for Nike. The news has come out about the first-quarter earnings report for the fiscal year of Nike, which was not that good.
The shares are down more than 6% on Friday afternoon. Ahead of the results, the share has tumbled up to roughly 9% from its all-time high of $174.38 from August.
Amidst the sale of some of the analysts are seeing an opportunity for the position of Nike on its business. There are chances for growth. The Supply chain of Nike is struggling. It is providing a cover to accelerate its strategy for direct to customers. It has been a key driver for profitability in recent quarters.
It takes roughly 80 days for Nike to get its goods from Asia to North America. It sums up to the doubled time compared to the period of pre-pandemic. Manufacturing facilities are reopening in Vietnam. Nike has lost 10 weeks of production due to shutdowns.
For its next quarter, Nike is predicting that its consumer demand will outweigh its supply chain. This means that Nike will need to be more strategic with its sticking of running shoes and workout tops.
“As long as inventory is constrained, it’s fair to assume the pivot to direct will be accelerated,” BMO Capital Markets analyst Simeon Siegel said. “They’re prioritizing their own channels with products first.”
Before the pandemic, Nike was on its path to grow its direct-to-consumer business. It has cut partnerships with some of the wholesale retailers. Over the three years, Nike pulled out nearly 50% of its wholesale accounts. This supply chain disruption might work as a key diver in this matter.
Nike is calling this transition a “consumer direct offense,” which is a play on sports terminology. In 2021, Nike’s direct revenue was 39% of sales which was way up from 35% from the previous year. Selling more goods has also aided its profits. The gross margin of Nike for the fiscal year 2021 grew up to 44.8%.
Havoc in the supply chain in the industry can accelerate the DTC push of Nike on a faster clip, and in turn, it can drive its higher profitability.
Nike is still in demand. Its partners are Dick’s Sporting Goods, Nordstorm, and Foot Locker. The investors on these stocks are having concern about the trouble of Nike. Citi analyst Paul Lenses said they are viewing this supply chain disruption as transitory. The delays are impacting the dirty space broadly.
“While some uncertainty still exists around how long it will take supply chain issues to clear up and if Nike’s China sales growth rate will accelerate, our view is investor sentiment will improve now that Nike has quantified the Vietnam factory shutdown impact,” analyst Jay Sole said. “We believe most investors will look to fiscal 2023 and see a rebound scenario.”