Earnings Results: Nike sales growth slows amid supply issues, and the stock is falling

Nike’s sales declined year-over-year for two consecutive quarters in 2020, as the COVID-19 pandemic shut down stores. Revenue growth bounced back in the fiscal second quarter, however, when the athletic-apparel company reported record quarterly revenue of $11.2 billion in a period that included Black Friday sales.

Sales growth slowed down in the most recent quarter, though, as the company was hampered by supply-chain issues, most notably moving merchandise from Asian factories to North America. Executives cited “disruption related to the COVID-19 pandemic, particularly in North America and EMEA” in the announcement.

“North America revenues declined 11 percent on a currency-neutral basis, largely driven by global container shortages and U.S. port congestion, which delayed the flow of inventory in the third quarter by more than three weeks, impacting timing of wholesale shipments,” Nike disclosed.

Stifel analysts wrote this week that the supply issues could “be a near-term challenge to sales.”

“Shipping container availability and port congestion is limiting the flow of goods to wholesale customers and end consumers,” they wrote, while maintaining a buy rating and $168 price target. “This dynamic is most notable in North America, where labor restrictions at West Coast ports related to COVID-19 have caused time delays and cost pressure to get goods into the distribution networks.”

Thursday’s results captured most of the holiday-shopping period, running from Dec. 1 through the end of February, and also showed slowing gains in e-commerce sales. Nike disclosed Thursday that digital sales increased 59%, after reporting 84% growth in the previous quarter and percentage growth of about 80% in the two quarters before that.

The company has focused on building its direct-to-consumer online sales capabilities in the past year, especially for high-demand products such as Air Force One sneakers, as sales through retailers can lead to lower margins and average selling prices. Nike said Thursday that direct sales grew 20% in the quarter, after 32% growth in the previous quarter.

Nike executives expect sales growth to accelerate more sharply in the fiscal fourth quarter, though that is more a reflection of the difficulties experienced in that period last year, as the COVID-19 pandemic hurriedly shut down commerce globally. Chief Financial Officer Matthew Friend guided for sales growth of roughly 75% from last year’s total of $6.3 billion, which would be slightly more than $11 billion. That forecast beats analysts’ average expectation of $10.4 billion, but only fills the hole in sales from the third quarter’s miss, as Friend acknowledged in a conference call Thursday.

“We expect to capture this delayed revenue in the fourth quarter,” Friend said, after noting “a lack of available supply, delayed shipments to wholesale partners and lower-than-expected quarterly revenue growth.”

Friend did not specifically state executives were changing Nike’s forecast for the full year, but did guide for revenue growth in the low- to mid-teens in terms of percentages, while in the previous quarter he had forecast sales growth in the low teens. Some analysts wrote in recent days that they expected executives to push the annual forecast modestly higher, and the average analyst forecast for annual sales sat at $43.33 billion Thursday, 15.8% higher than last year’s total.

Nike also announced that it will resume share repurchases, after halting its buybacks last March.

Nike shares fell more than 3% in after-hours trading following the release of the results. Shares closed Thursday with a 1.1% decline at $143.17, but have gained 110.4% in the past year, as the S&P 500 index SPX, -1.48% increased 65.7% and the Dow Jones Industrial Average DJIA, -0.46% — which counts Nike as one of its 30 components — grew 65.9%.