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The Ratings Game: Nike shares slammed as earnings fall short, but analysts remain upbeat despite temporary supply chain challenges

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Nike Inc. stock fell 7% in Friday trading after the athletic goods giant revised its guidance in light of manufacturing shutdowns in Vietnam, as well as other supply chain issues that are rocking most consumer categories.

“We now expect fiscal 2022 revenue to grow mid-single-digits versus the prior year, versus our prior guidance of low-double-digit growth, due solely to the supply chain impacts that I just described,” said Matthew Friend, chief financial officer at Nike
NKE,
-6.04%
,
on the late Thursday fiscal first-quarter earnings call, according to FactSet.

“Specifically for Q2, we expect revenue growth to be flat to down low-single-digits versus the prior year, as factory closures have impacted production and delivery times for the holiday and spring seasons. Lost weeks of production combined with longer transit times will lead to short-term inventory shortages in the marketplace for the next few quarters. We expect all geographies to be impacted by these factors. However, those geographies in Asia with less in-transit inventory at the end of the quarter will experience a disproportionate impact beginning in Q2.”

Read: Why Costco is rationing toilet paper and paper towels again, and what it says about supply chains everywhere

The FactSet consensus is for second-quarter revenue of $11.528 billion, suggesting a 2.5% increase. The full-year FactSet revenue consensus is for $48.167 billion, implying a 8.1% gain.

Nike’s factories in Vietnam have been shut since July with reopenings expected in the beginning of October. Nike says it will take “several months” for production to reach capacity.

“While some uncertainty still exists around how long it will take supply chain issues to clear up and if Nike’s China sales growth rate will accelerate, our view is investor
sentiment will improve now that Nike has quantified the Vietnam factory shutdown
impact,” wrote UBS analysts in a note.

UBS rates Nike shares buy with a $185 price target.

And: Shop early and expect to pay more: Supply-chain issues could be a stumbling block to upbeat holiday shopping forecasts

“Issues are transient and rebalancing supply to meet demand is likely in early FY23 suggesting both opportunity from channel replenishment and a return to the prior
expected earning trajectory,” wrote Stifel analysts.

“We remain compelled by the business transformation to a higher margin, higher
return economic model. Accordingly, we continue to view Nike as a top-tier core holding for large-cap growth investors and recommend using any weakness in shares in response to supply challenges as an opportunity to build positions.”

Stifel rates Nike stock buy with a $213 price target.

Not all analysts are as confident.

“Given that the factories in southern Vietnam have yet to reopen, we believe mid-single-digit guidance could prove too optimistic, particularly as Nike echoed our views that it would take time for the factories to return to full capacity (Indonesia has reopened, but still is not producing at full capacity) and as such, visibility is virtually nil,” wrote BTIG analysts led by Camilo Lyon. BTIG highlighted its downgrade of Nike shares to neutral earlier this month due to the COVID-19 pandemic in Vietnam.

Don’t miss: Nike supply chain problems in Vietnam could mean challenges ahead for Dick’s Sporting Goods

“In addition, worsening bottlenecks throughout the supply chain (port congestion, container shortages, limited ocean and air availability) have doubled shipping transit times to 80 days further exacerbating an already poor supply situation.”

Nike stock is up 5.3% for the year to date while the Dow Jones Industrial Average
DJIA,
+0.16%

has rallied 13.5% for the period.

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