Nike shares slide after supply chain problems weaken revenue

US sportswear maker with the swoosh logo not as swish when it came to third quarter deliveries

Despite lower sales, Nike's third quarter profits beat expectations as it achieved gross margins of 45.6 per cent. Reuters

Nike shares fell the most since October on Friday after its pandemic rebound suffered a setback last quarter, when supply-chain problems kept products from reaching North America, its biggest market.

The athleticwear giant, which posted surprisingly strong growth in the previous quarter, missed Wall Street estimates with its latest results. Sales amounted to $10.4 billion in the third quarter – far below analysts’ projections of $11 billion.

Its revenue in Europe also was disappointing, partly because many stores there remain shuttered due to the pandemic.

Nike shares fell as much as 4.3 per cent to $137 in New York trading Friday after its Thursday post-close announcement. The stock had been up 1.2 per cent this year until Thursday's close.

The recovery has been uneven for Nike around the world. In China, where the virus has largely receded, sales have been robust: They jumped 51 per cent in the quarter ended February 28 and beat estimates. North American revenue declined 10 per cent, partly because of port congestion and container shortages.

“Nike could achieve management’s guidance of 75 per cent sales growth in fiscal 4Q, surpassing consensus’ 65 per cent gain, as the company captures missed sales from 3Q supply constraints and increases share via innovation and sports,” Poonam Goyal, a retail analyst at Bloomberg Intelligence said.

The shipping problems began in late December, with delays at US ports on the West Coast adding three weeks to transportation times, executives said. That led to late shipments and a lack of supply for wholesalers. Inventory at Nike’s distribution centres fell 20 per cent with so much product stuck en route.

Even with the sales shortfall, Nike’s earnings topped estimates. The company posted a profit of 90 cents a share, compared with a projection of 76 cents. Its gross margin was 45.6 per cent, more than a percentage point above the 44.4 per cent estimate.

E-commerce has helped Nike weather the disruption from Covid-19. Digital sales of its Nike brand soared 59 per cent last quarter, the company said, citing strong growth in every region.

“We continue to see the value of a more direct, digitally-enabled strategy, fuelling even greater potential for Nike over the long term,” Chief financial officer Matt Friend said in a statement.

Pandemic-fuelled lockdowns have boosted e-commerce orders for many brands, but Nike has been especially aggressive in shifting sales to online channels and its company-owned stores – rather than the retail partners it has used for decades.

But its strategy has had some hiccups. Nike drew the ire of sneakerheads in recent weeks when Bloomberg Businessweek revealed that the son of a top executive had a burgeoning footwear resale business. Ann Hebert, Nike’s head of North America, left the company and was replaced by Sarah Mensah, who previously ran the Asia Pacific and Latin America division.