Nike Inc. (NKE) - Get Report shares slipped lower Friday after the world's biggest sports apparel company said the coronavirus pandemic will have a 'material' impact on its wholesale operations amid store closures and supply-chain disruptions.
Nike said nearly all of its wholly-owned and partner stores in China and South Korea have re-opened, although foot traffic remains below trend, following COVID-19 shutdowns in March that resulted in 'significant' reductions in wholesale revenues and higher inventories.
That trend, however, is being partially offset by a surge in digital engagement, Nike said in an investor update, with "accelerated new member acquisition and strong digital demand across the global marketplace". Nike stores are also re-opening in Europe, as well as in north America, and digital fulfillment capacity is being increased to meet the rise in demand.
"We are operating in a dynamic environment which will continue to evolve," the company said in a statement late Thursday. "Furthermore, the full extent of the impact of the COVID-19 pandemic on NIKE’s operational and financial performance remains uncertain and will depend on many factors outside of NIKE’s control."
"Additional updates will be provided during our fourth quarter earnings call, " which is expected on June 20.
Nike shares were marked 1.5% lower at $85.37 each in early Friday trading, compared 0.6% pullback for the Dow Jones Industrial Average. The move would extend the stock's year-to-date decline to around 15.4%.
"We expect China to have a different recovery arc than other regions (and Nike to have different recovery arc than other brands); however, this is encouraging," said BMO Capital Markets analyst Simeon Siegel after the Nike update.
"As all retailers/brands essentially hit various degrees of pause on their businesses, we believe those best capitalized sit in enviable positions to go on the offense and strategize how to thrive post-COVID-19 rather than simply survive," he added. "We expect Nike will feel the dislocation expected to be felt across retail; however, we also believe it is best situated to grab share through the havoc."
Nike's China operations, which the company told investors last year "continues to set the pace" for the company's global growth, are are also a subject of domestic controversy amid the heightened tensions between Washington and Beijing.
Republican Senator Marco Rubio, along with House Democrat James McGovern, have co-sponsored the Uyghur Forced Labor Prevention Act, which seeks to put the burden of proof on U.S. companies with links to the Xinjiang region of China that their products were not made by forced labor.
Ethnic Uyghurs, one of the few Islamic groups in China, are suspected of being forced to work against their will in the region, a charge Beijing has repeatedly denied.
"Nike remains dedicated to ethical and responsible manufacturing and we are deeply committed to ensuring the people who make our product are respected and valued," the company said in a statement earlier this year.
"While Nike does not directly source products from the Xinjiang Uighur Autonomous Region (XUAR), and does not have relationships with the Haoyuanpeng Clothing Manufacturing, Qingdao Jifa Group, or Esquel facilities in XUAR," the statement added. "We have been conducting ongoing diligence with our suppliers in China to identify and assess potential risks related to employment of people from XUAR.