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Nike Looks Choppy

Sports apparel maker is facing supply and shipping challenges heading into key season.

Nike NKE  (NKE) - Get NIKE, Inc. (NKE) Report faces massive headwinds and its guidance for the next quarter appears to be rocky as the global pandemic as increased supply chain bottlenecks for the athletic apparel and footwear giant, Real Money’s Stephen “Sarge” Guilfoyle argues.

"The problem, more than the first-quarter revenue miss, was in the guidance," Guilfoyle wrote recently on Real Money. "For their current fiscal (second) quarter, Nike expects revenue growth to be flat to down low-single digits (in percentage terms) due to factory closures in Asia, most lately, and notably in Vietnam. Nike expects both holiday and spring season sales to be negatively impacted. CFO Matthew Friend stated "Consumer demand for Nike remains at an all-time high and we are confident that our deep consumer connections and brand momentum will continue."

For their current fiscal (second) quarter, Nike expects revenue growth to be flat to down low-single digits (in percentage terms) due to factory closures in Asia, most lately, and notably in Vietnam. Nike expects both holiday and spring season sales to be negatively impacted. CFO Matthew Friend stated "Consumer demand for Nike remains at an all-time high and we are confident that our deep consumer connections and brand momentum will continue."

For their current fiscal (second) quarter, Nike expects revenue growth to be flat to down low-single digits (in percentage terms) due to factory closures in Asia, most lately, and notably in Vietnam. Nike expects both holiday and spring season sales to be negatively impacted. CFO Matthew Friend stated "Consumer demand for Nike remains at an all-time high and we are confident that our deep consumer connections and brand momentum will continue."

The company reported its fiscal first quarter results recently and results were mixed. Nike reported GAAP EPS of $1.16, which beat Wall Street estimates, but revenue generation of $12.25 billion or annual growth of 15.6% fell below estimates.

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Nike reported growth of 24% at its company's owned physical stores while North American sales rose by 15% to $4.879 billion and sales in Europe, Middle East & Africa increased 14% to $3.307 billion. Sales also rose in Asia with greater China generating growth of 11% to $1.982 billion and while Asia Pacific and Latin America reported a massive 33% increase to $1.465 billion.

Supply chain concerns are not improving even as more people globally are vaccinated and Nike estimates revenue growth to be flat because of factory closures in Asia, especially in Vietnam.

But Nike CFO Matthew Friend said that consumer demand for its products “remains at an all-time high and we are confident that our deep consumer connections and brand momentum will continue.”

The company also warned that missing several weeks of production in Vietnam and Indonesia and the increasing transit times will add up to “short-term inventory shortages in the marketplace for the next few quarters.” Nike even warned that full fiscal year 2022 sales will increase at a mid-single-digit pace, compared to its previous estimate of double-digit growth. These constraints will hamper holiday and spring season sales, the company said.

Investors are also wary despite Nike’s cash and short-term investments that have risen by 44.5% to $13.7 billion over the past 12 months, despite returning $1.2 billion to shareholders through dividend payments and share repurchases.

The stock has had a period of a $15 unfilled gap and could decline even further to $135 per share. Analysts remain positive on the future of the stock and five analysts reiterated or maintained "buy" ratings and only one has a "hold" rating.

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