Nike Sales Hit by Pandemic-driven Supply Shortages

Kellie Ell and Evan Clark
·3 min read

Nike Inc.’s pandemic sprint ran into trouble at the ports and in a locked-down Europe — but the sportswear giant still managed big bottom-line gains in its fiscal third quarter.

The sneaker and fashion giant’s net profits increased 71 percent in the quarter to $1.4 billion, up from $847 million a year earlier. Earnings per share of 90 cents came in well ahead of the 76 cents Wall Street analysts anticipated.

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The top line was much more problematic.

Sales for the quarter ended Feb. 28 rose just 3 percent to $10.4 billion with sales down 1 percent on a currency-neutral basis. That came as a disappointment as analysts on average were looking for 9.1 percent revenue growth.

Investors took a step back, sending shares of the company down 2.8 percent to $139.22 in after-hours trading as they evaluated the impact of pandemic-driven disruptions at ports and stores.

Nike’s North American sales fell 10 percent in the quarter, which the company pinned on “supply chain challenges, including global container shortages and U.S. port congestion, impacting the flow of inventory and timing of wholesale shipments.” Inventory was delayed by more than three weeks during the quarter, impacting the timing of wholesale shipments.

Brick-and-mortar retail sales in Europe, the Middle East and Africa fell 45 percent as Nike-owned stores faced mandatory COVID-19 closures in January and February. About 65 percent of the companies’ stores in the region are now open to at least some degree.

Offsetting those declines was a 42 percent jump in Greater China, on a currency-neutral basis.

While Nike sells through many retail partners, the brand is doing best on its own, with direct sales up 20 percent to $4 billion and digital sales surging ahead 59 percent for the quarter.

“This continues to be a dynamic external environment, but I am proud how adaptable Nike is,” said John Donahoe, president and chief executive officer, on a conference call with analysts. “No matter what happens — COVID-19 spikes forcing store closures, port congestion on the West Coast, and more — this team responds with solutions. We adjust and we win.”

Donahoe linked the company’s strength to its branding power.

“We remain consumers’ number-one favored brand in all 12 of our key cities in both men’s and women’s businesses,” the CEO said. “We’re also seeing particularly strong connections in Greater China where our strong portfolio of brands, including Jordan and Converse, is helping to extend our leadership position. All over the world, the relationships we have with consumers cannot easily be replicated. Our brand differentiates us, driven by the unique competitive advantages that we enjoy.”

Donahoe also gave a nod to the company’s efforts to build its digital operations and take advantage of its positioning in the market. “Nike’s digital transformation remains a unique advantage,” he said. “Scale matters. The strength of our brand allows us to stay personal, at-scale, with consumers in all of our geographies, and more than ever, the portfolio effect of being a truly global brand is powerful.”

Now the company is looking to push the power of its brand as the world — fingers crossed — opens back up.

But it might not be a straight line from here to there.

Matthew Friend, chief financial officer, said, “While we are optimistic about the pace of the vaccine distribution and how this will enable safe reopening of the global economy in the near future, the effects of the virus continue to create short-term volatility in our business performance.…Our operating priorities remain unchanged, and we’re focused on what we can control — optimize marketplace supply and demand with speed and agility, accelerate the pace of direct connections with consumers, and exert our financial strength to move faster toward our long-term strategic vision of the Consumer Direct Acceleration.”

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