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Nike cuts sales outlook amid supply chain disruption

Nike Inc. lowered its sales outlook as production and shipping delays hobbled the company’s efforts to meet strong demand for shoes and athleticwear.

Revenue rose 12% to $12.2 billion in the three months through August after adjusting for currencies, missing analysts’ expectations of $12.5 billion. The world’s largest athleticwear company also warned that sales this quarter may fall as factory closures prevent Nike from keeping up with consumer demand.

The company lowered its full-year revenue guidance to mid-single digit growth. Nike is suffering from the same supply chain issues in Asia that are hindering trade around the world, from high container costs to lengthy transit times. Plus, it’s dealing with closures in the production hub of Vietnam, where a resurgence in Covid-19 cases has led to extended lockdowns.

“It’s all about the inventory. Demand is clearly very high,” Bloomberg Intelligence analyst Poonam Goyal said in comments following the release on Bloomberg Television. “How much inventory is in transit, and is it enough to meet holiday demand?”

Previously the shoemaker targeted low double-digit growth in full-year sales. In Thursday’s statement, Nike said inventories were at $6.7 billion for the quarter, which is flat from a year ago. While the company said demand was strong, it also cited “elevated in-transit inventories due to extended lead times from ongoing supply chain disruptions.”

Nike Chief Financial Officer Matthew Friend outlined the issues during the company’s call with analysts. Most Nike factories in Vietnam remain shut due to government mandates and the company has lost about 10 weeks of production since mid-July, he said. Nike doesn’t expect the facilities to reopen until October, and they’ll take several months to ramp up manufacturing.

Shipping times from Asia to North America, meanwhile, worsened in the quarter, doubling to 80 days due to port and rail congestion and labor shortages. That’s left lots of inventory lingering in transit while margins were hurt by higher ocean freight surcharges.

“We had full-price inventory that was unavailable to use to serve current consumer demand in this quarter,” Friend said.

Sports Return

Nike has gained steam in recent quarters as sports resumed in earnest, with fans packing stadiums and kids returning to school playing fields. That’s driven demand for sneakers and apparel around the world. Now, the prospect of meeting consumers’ voracious appetite during the holiday months seems daunting.

Cuts in wholesale distribution have put renewed focus on Nike’s direct-to-consumer channel, which grew 25% this quarter on a constant-currency basis.

Sales in China, meanwhile, which slowed last quarter after calls for boycotts over corporate statements on forced labor related to cotton production in the Xinjiang region, continued to be lackluster, rising 1% when adjusting for currency effects.

Earnings rose to $1.16 a share, compared with estimates of $1.12.

Nike shares fell 3.9% to $153.32 in extended trading in New York. The stock had risen 13% this year through the close Thursday in New York.

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