Following Nike’s (NYSE: NKE) mixed Q2 earnings last Thursday, shares have been dipping deeper into the red. On Monday, Nike dipped more than 1% once more, despite positive news on the production front due to Vietnam’s easing of COVID-19 restrictions.
So why is it still dropping?
Is Nike having supply issues?
Much like almost every other business on the planet, Nike is struggling to get its products onto shelves. COVID-19 restrictions in Vietnam, where it manufactures a massive amount of its products, have caused a massive backlog in supply, while shipping delays have also caused issues.
These constraints have forced Nike to revise its guidance for the rest of the year, now expecting full-year sales to increase at a mid-single-digit pace, compared with a prior outlook of low double-digit growth.
But yesterday, Vietnam scrapped its zero COVID-19 policy and restrictive lockdowns it had used to prevent the spread of the virus amid low vaccination rates. This is good news, but far from the end of its problems, as transport and recurring restrictions elsewhere may continue. Don’t expect Nike to readjust its full-year outlook for the better any time soon.
How did Nike perform in its Q2 earnings?
It was a mixed bag from the world’s most famous athletic apparel company. Earnings per share of $1.16 topping estimates, while revenue of $12.25 billion fell short of expectations. “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,” CFO Matt Friend told investors.
Should I buy Nike shares?
Nike remains one of the most successful investments on Wall Street and, despite its size, retains a strong bull case for growth.
According to management, tightened inventories have resulted in greater profitability on products sold. Long-term investors should not dismiss the importance of this as it represents an ongoing strategy aimed at accelerating direct sales of its products to consumers. By eliminating intermediaries, profit margins will grow over the long run for Nike. Supply constraints could be the catalyst to kick this strategy up a gear.
As long as your conviction in Nike’s longevity remains strong, it’s the long-term plans that should affect your mindset. And from here, the long-term looks exciting.
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Editor at MyWallSt
Jamie is the Content Editor here at MyWallSt. His favorite stock is Apple, which is also the first stock he ever bought. Jamie is not only a big fan of its products, but he believes that the tech giant has a whole lot more to give the world, and hasn't even scraped the surface of its potential.