Nike (NKE) Q1 2022 earnings beat, sales miss

Nike shares dropped more than 3% in extended trading Thursday after the sneaker giant said supply chain congestion is hurting its business more than it previously anticipated.

The sneaker giant lowered its fiscal 2022 outlook to account for longer transit times, labor shortages and prolonged production shutdowns in Vietnam.

Nike now expects full-year sales to increase at a mid-single-digit pace, compared with a prior outlook of low double-digit growth. In the fiscal second quarter, it sees sales flat to down low-single digits. Analysts had been looking for revenue growth of 12% for the year, as well as a 12% increase for the second quarter, according to Refinitiv data.

Nike’s revised forecast comes in the wake of a mixed first-quarter earnings report. It missed revenue expectations, as demand in North America softened. But the company sold more goods to shoppers at full price, boosting profits.

Here’s how Nike did during its fiscal first quarter compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

• Earnings per share: $1.16 vs. $1.11 expected
• Revenue: $12.25 billion vs. $12.46 billion expected

Over the next few quarters, Nike anticipates its entire business will see short-term inventory shortages, Chief Financial Officer Matt Friend said during a conference call.

Since mid-July, the company has been working through factory shutdowns in Vietnam, where it produces roughly 50% of its footwear and 30% of its apparel. Facilities have been closed as the government tries to tamp down the spread of the Covid-19 virus. About 80% of Nike’s footwear factories in Southern Vietnam and roughly half of its apparel factories in the area remain closed, Friend said.

“We’ve already lost 10 weeks of production and that gap will continue. … It’s going to take several months to ramp back to full production,” he told analysts.

Once its products are produced, Nike is also running into shipping delays. According to Friend, transit times in North America are double pre-pandemic levels, with it taking an average of 80 days to move goods from Asia to Nike’s home turf.

Nike said demand worldwide for its shoes and workout apparel remains strong. But with these bubbling inventory issues, near-term performance will be hurt.

Management said fiscal first-quarter results would have been incrementally stronger, were it not for the supply chain snafus. Bottlenecks are resulting in a material lack of supply, leaving some consumers emptyhanded.

Nike’s fiscal first-quarter sales climbed to $12.25 billion from $10.59 billion a year earlier, but were short of expectations for $12.46 billion.

China posted the smallest gain of any of its geographies, climbing 11%. In past quarters, the region had been one of Nike’s biggest revenue drivers.

Revenue in North America rose 15% to $4.88 billion. That…