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Nike warns about its production problems ahead of the Christmas season

2021-09-25T17:38:36.042Z


Nike has warned that factory closures in Asia and container and labor shortages will impact its production until next spring.


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Hong Kong (CNN Business) -

If you've already listed a new pair of Nike shoes for the holidays, you may have to wait a bit.

The sportswear giant has warned that supply chain problems, caused globally by the Covid-19 pandemic, will impact its production and delivery of its products globally until next spring.

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

"We are not immune to the global supply chain hurdles that are challenging [manufacturing] and product movement around the world," CFO Matthew Friend said on an earnings call.

"We expect all geographies to be affected by these factors."

The problems forced Nike to trim its full-year sales outlook on Thursday, despite Friend saying "consumer demand has never been higher."

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Supply chain problems have already weighed on the company's most recent earnings.

Results for the quarter ending in August were mixed, with revenues that did not meet analysts' expectations, but with net income that exceeded forecasts, according to Refinitiv data.

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Friend stressed that the company's results would have been "stronger if not for congestion in the supply chain, which has caused a lack of available supply."

News of the gloomier outlook sent Nike shares down more than 4% in pre-market trading on Friday.

The company now expects revenue for this fiscal year to grow in the single digits, compared to its previous double-digit growth guidance from the prior year.

Headaches in the supply chain

According to Friend, "the situation has deteriorated even more" in recent months.

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

But the company's pandemic-related restrictions, which have forced factories to close, have recently affected the company.

In Vietnam, for example, it has lost 10 weeks of production since July.

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

"Two things have happened in the industry in the last 90 days that we hadn't anticipated. First, the already long transit times got worse; and second, local governments ordered closures in Vietnam and Indonesia." he told analysts on Thursday.

"As of today, Indonesia is fully operational. But in Vietnam, almost all shoe factories are still closed by government mandate."

The executive said there were plans to reopen some facilities in stages, but predicted that "a gap will continue until factories can reopen and produce at normal capacity."

Nike has also been paralyzed in other regions.

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In North America, Europe, the Middle East and Africa, their teams have seen an increase in transit times, largely due to "port and rail congestion and labor shortages," according to the CFO.

Global supply chains have been disrupted by the aftermath of the pandemic, causing shortages of consumer products and making it more expensive to ship goods to businesses that need them.

Unresolved issues and the emergence of new issues, such as the delta variant, mean that buyers are faced with higher prices and fewer options this holiday season.

Other retailers, such as Adidas, Crocs and Hasbro, have already warned of disruptions as they prepare for the crucial year-end period.

Book sellers are also urging customers to place their Christmas orders in advance.

Transportation companies expect the global crisis to continue.

This is greatly increasing the cost of freight transport and could increase upward pressure on consumer prices.

In response to the crisis, Nike said Thursday that it was planning to spend more on air travel for the holiday season.

"[We are going to] manage all the levers that we can in this tight supply chain environment," said CEO John Donahoe.

- Hanna Ziady contributed to this report.

Nike

Source: cnnespanol

All news articles on 2021-09-25

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