Nike's Vietnam supply hurdles in focus ahead of quarterly results

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FILE PHOTO: Nike shoes are seen displayed at a sporting goods store in New York City, New York, U.S., May 14, 2019. REUTERS/Mike Segar

 

(Reuters) - Are sneakerheads in for a rough holiday season?

 

Nike Inc's updates to its full-year sales outlook on Thursday will likely answer that pressing question for Wall Street as the world's largest sportswear maker deals with unprecedented supply challenges ahead of the holiday season.

 

Three months ago, Nike gave a rosy outlook for the rest of the year as it benefited from consumers splurging on sneakers for running and hiking as they returned to their routines after over a year of staying at home.

 

Still, some analysts have cut their outlook for Nike's sales, predicting that lockdowns and factory closures in Vietnam, where about half of all Nike footwear is manufactured, will cause shortages during the crucial shopping season.

 

"We believe the risk of significant cancellations beginning this holiday and running through at least next spring has risen materially for Nike as it is now facing at least two months of virtually no unit production at its Vietnamese factories," BTIG analysts wrote in a note.

 

THE CONTEXT

 

Many factories in Vietnam's manufacturing hubs have been shut or are operating with drastically fewer on-floor workers since mid-July as a surge in Delta variant cases forced the government to implement tight containment policies.

 

Other apparel companies including Abercrombie & Fitch and Adidas AG have taken a hit to their businesses due to production issues in Vietnam.

 

Some analysts, however, see Nike using its scale to offset the sales impact from Vietnam shutdowns.

 

"The company should be able to mitigate some headwind by shifting production to other countries, like China, and prioritizing top sellers, key products, and its DTC (direct-to-consumer) channel," Telsey Advisory Group analysts said.

 

THE FUNDAMENTALS

 

* Since the start of September, analysts have cut their full-year sales expectations for Nike to $49.81 billion from $50.34 billion due to worries about supply shortages

 

* Full-year earnings per share estimates have also fallen to $4.24 from $4.33, according to IBES data from Refinitiv

 

* Nike's revenue for the reporting quarter is expected to have risen 17.7% to $12.46 billion from a year earlier

 

* The blue-chip stock has gained 11% this year, but is down about 10% from its record high hit in August

 

WALL STREET SENTIMENT

 

* The current average analyst rating on NKE shares is "buy", with 28 rating it "strong buy" or "buy", four rating it a "hold" and one rating it a "strong sell".

 

* The median price target is $185. The stock closed at $155.02 on Tuesday

 

QUARTER STARMINES REFINITIV ACTUAL BEAT, SURPRISE %

 

ENDING MARTESTIM IBES MET,

 

ATE® ESTIMATE MISSED

 

May 0.52 0.51 0.93 Beat 82.7

 

31 2021

 

Feb. 0.77 0.76 0.90 Beat 18.1

 

28 2021

 

Nov. 0.63 0.62 0.78 Beat 25.1

 

30 2020

 

Aug. 0.44 0.47 0.95 Beat 102.5

 

31 2020

 

-- © Copyright Reuters 2021-09-13