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Nike Suppliers Cut Output in Vietnam Due to COVID Rules

Nike suppliers in Vietnam are cutting production due to COVID requirements. Vietnam produces half of Nike's shoes.

Two Nike  (NKE) - Get NIKE, Inc. (NKE) Report suppliers in Vietnam are cutting production to meet COVID requirements there, according to exchange filings.

The suppliers for the athletic apparel/shoe company are Eclat and Quang Viet. Hong Kong-listed Shenzhou International, another Nike supplier, also unveiled a production reduction Monday, Bloomberg reports.

And Reuters reported last week that two other Nike shoe suppliers -- Changshin Vietnam of South Korea and Taiwan's Pou Chen -- are curbing production.

Reuters reported last week that Vietnam had until recently successfully contained coronavirus outbreaks, with limited disruption to its crucial manufacturing sector.

But since late April, it has seen record cases on many days in July, most of those in the commercial hub Ho Chi Minh City and its neighboring industrial provinces of Dong Nai and Binh Duong.

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Nike said in its Securities and Exchange Commission 10-K report that during fiscal 2020, factories in Vietnam produced half its shoes and 28% of its apparel, Bloomberg reports.

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Nike shares on Tuesday recently traded at $158.57, up 0.4%. They'd risen 13% in the six months through Monday amid a strong financial performance from the Beaverton, Ore., company.

Morningstar analyst David Swartz likes Nike but not its valuation. “We intend to raise our Nike per share fair value estimate of $118 by a high-single-digit percentage,” he wrote in a commentary last month.

“But we view its shares, trading at more than 40 times trailing earnings, as expensive.”

Swartz views the company as having a wide moat, or sustainable competitive advantage.

In June, Nike forecast 2022 sales of more than $50 billion on the back of better-than-expected fourth-quarter earnings.

Nike said earnings for the three months ended in May came in at 93 cents a share, compared with a loss of 51 cents in the year-earlier quarter and ahead of the Wall Street consensus forecast of a 51-cent profit. 

Group revenue rose 96% from a year earlier to $12.34 billion.