Nike Just Did It Despite Supply Chain Constraints

On Monday, Nike Inc (NYSE: NKE) shares rose more than 3% as fiscal second-quarter earnings and revenue topped Wall Street estimates fueled by strong demand in its biggest market, North America.  In an even stronger competitive position than before the pandemic, Nike backed its full-year outlook, guiding for mid-single-digit revenue growth.

Fiscal Second Quarter Growth

For the quarter ended on November 30^th, net income rose to $1.34 billion, or 83 cents a share, significantly exceeding analysts' expectations of 63 cents a share. Revenue grew 1% to $11.36 billion, also topping estimates of $11.25 billion. North America experienced the highest growth as it climbed 12%, followed by Europe, Middle East, and Africa region's 6% growth rate, while Greater China which is key to future growth tanked 20%. But this was a consequence of COVID-lockdowns that resulted in lost production, lower inventory, and volatile traffic patterns.

As the apparel giant continues to increasingly take its products out of wholesale channels, digital sales rose 12% YoY, followed by sales through Nike Direct that rose 9%.

Outlook

All factories are up and running and reduction is back to about 80% of pre-closure levels. Chief Financial Officer Matt Friend is increasingly confident that supply levels globally will normalize heading into fiscal 2023 but costs for the fiscal year to be higher than anticipated three months ago. Full-year guidance that includes mid-single-digit revenue growth has been confirmed although a low-single-digit rate from the prior year is expected for the undergoing third quarter due to lingering effects from the Vietnam factory closures.

The Metaverse Bet

Earlier in December, Nike revealed it bought a virtual sneaker company RTFKT along with filing trademarks as it embarks on a journey to create next-generation experiences and sell its merchandise in a virtual universe.

Recap

CEO John Donahoe said that although Covid-induced plant closures in Asia slowed inventory shipments earlier this year and dented its progress, the flow of goods picked up during its latest quarter. Despite ongoing supply chain pressures that have slowed deliveries and threatened to hamper the holiday shopping season, Nike did not only "just do it"- it came out of the pandemic even stronger. 2022 will be a year of recovery for China that is key for the business moving forward and improvements are expected in the fiscal third quarter.

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