Will there be Nike at Christmas?
Yes, but less than expected.
Thursday evening, the world's leading sports equipment manufacturer warned that the plant closures in Vietnam and Indonesia in recent months due to the resurgence of the Covid, as well as the congestion of means of transport would have serious consequences on its supplies.
This will
"lead to a shortage of stocks (of shoes and clothing) in the market over the next few quarters,"
Group CFO Matt Friend told a conference.
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In fact, half of Nike's shoes are made in Vietnam, a country where production sites are still almost all closed.
And it takes time to revive the manufacture of shoes or clothing, once the sanitary restrictions are lifted.
"We have already lost about ten weeks of production,"
said the financial director.
As for the average transport time between Asia and North America, it has doubled from 40 days before the pandemic to 80 days currently.
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This insufficient production stops Nike in its tracks. Because of this shortage, the American giant had to significantly lower its sales forecast for its annual fiscal year ending in May 2022, reducing growth to around 5%, against + 10% to + 15% previously forecast. And this while the attractiveness of consumers for its products is unabated. From June to August, Nike's sales climbed 12%, growing organically. The American giant knows how to capture the worldwide craze for sneakers (sneakers) and clothing inspired by the sports world. Another success, the group is powerful on the digital: its online sales increased by 25% during the quarter ended at the end of August. Nike bounced back very quickly after the first Covid crisis. During its fiscal year ended in May 2021,its revenue grew 19% to $ 44.5 billion, and its net profit reached $ 1.5 billion.
Pressure on margins
Used to this excellent performance, investors were disappointed by Thursday's announcements.
Friday in session, Nike stock lost more than 6%.
That of its competitor Adidas fell by 3%, as did that of Puma: the other two sports equipment manufacturers are growing (Adidas revenues increased by 34% in the first half, leading the group to raise in August to +20 % its growth prospects for 2021), but they are likely to face the same supply problems.
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These tensions on the production apparatus could also weigh on margins.
Nike admitted its production costs were on the rise because of soaring ocean freight rates.
As for its marketing expenses and its salary costs, they climbed by 20% during the quarter ended at the end of August, in particular because of a sustained investment in digital.
The American giant nevertheless has the means to resist these headwinds.
Its powerful brand allows it to have power over its prices and limit promotions.
Especially since the group has chosen to sell more and more directly to consumers.
Nike for example left Amazon in November 2019. But the health crisis will have revealed the importance of supply issues.
For pharmaceuticals, semiconductors, but also… textiles.