👟 Is Nike’s $50B Revenue Mark Within Reach?

Deere workers set to go on strike; Delta's warning.

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👟 Nike: The $50B Mirage?

Sportswear giant Nike (NKE) is plagued with supply-side woes. While the company continues to find favor with customers of all age groups, especially teenagers, as well as analysts, investors are wondering whether the company will achieve its much-bandied $50B revenue target this year. (Tweet This)

Mystery Of The Missing Shoes!

Back in October 2015, Nike set a goal – $50B in revenue by the end of the fiscal year 2020. At the time, the company had unveiled a world-class advanced manufacturing and design center at its headquarters in Beaverton, Oregon.

Two years later, then CEO Mark Parker did not directly address the $50B goal but said the goal was still in play. On that same day, Nike announced plans to boost revenue generated from digital platforms from 15% in the fiscal year 2018 to more than 30% over the next five years.

A further two years later, Covid blew all those goals and predictions away, or so it seemed. Severe supply chain constraints that are now the norm have disrupted plans for businesses worldwide, especially so for Nike, which has its manufacturing hub out in the East.

Vietnam is the company’s biggest manufacturing hub. 51% of its footwear and 30% of apparel production takes place in the South-East Asian country. Courtesy of Covid, Vietnam has been reeling under a strict army-enforced lockdown since July. Only recently has there been a let-up of sorts.

Was it just the lockdown in Vietnam? Supply chain woes now span the gamut – a dearth of truck drivers, raw-material shortages, container shortages, and even container ships. The company lost nearly ten weeks of production for goods that were initially slated for delivery in mid-October.

Stake In The Ground

Needless to say, Nike’s Q1 performance was impacted as a result.

Key Stats From Q1:

  • Revenue: $12.25B Vs $12.46B expected
  • EPS: $1.16 Vs $1.11 expected

The company expects full-year sales to grow in mid-single-digits, with Q2 being more or less flat. In contrast, the analysts were estimating a 12% growth in sales for the full year and Q2.

The management admitted it would take several months to ramp back up to full production. Shipping delays have compounded the problem. It takes an average of 80 days to move goods from Asia to the US – almost double the time pre-Covid.

In the meantime, Nike is doubling down on its direct-to-consumer strategy and slowly moving away from wholesalers. The company sells products on its channels, including tech-enhanced stores and the SNKRS app, where fans can wait for upcoming product releases.

As per the company, demand on the app rose 130% in Q1. Cutting down on the middlemen may result in higher profit margins and give the company greater control over how its products are presented.

The dark clouds of supply chain notwithstanding, there’s a silver lining for Nike, especially from the teenage crowd. A survey of 10K US teens released last week placed Nike in the top spot among their favourite footwear and apparel brands. Analysts are jumping into the fray, bullish on Nike’s long-term business prospects.

Be that as it may, Nike will need a lot more than just teenagers getting excited about its product if it has to make the $50B goal a been-there-done-that proposition. With the fleeting attention span, people have nowadays, Nike needs to make the most of this window to remain “LIT” in the eyes of teenagers.

Market Reaction
NKE ended at $156.30, up 1.92%. Shares are up 11.6% this year.

Company Snapshot 📈

NKE $156.30 +2.95 (1.92%)

Analyst Ratings (31 Analysts) BUY 84%  HOLD 13%  SELL 3%

Newsworthy 📰

Breakdown: Deere workers set to go on strike as UAW fails to reach deal (DE -0.48%)

Cautious: Delta Airlines posts profit but warns rising fuel prices will squeeze Q4 bottomline (DAL -5.76%)

Strong: BlackRock Q3 revenue, earnings beat Wall Street’s expectations (BLK +3.78%)

Later Today 🕒

  • Bank of America Corp. Earnings (BAC)
  • Wells Fargo & Co. Earnings (WFC)
  • Morgan Stanley Earnings (MS)
  • Citigroup Inc. Earnings (C)
  • US Bancorp Earnings (USB)
  • UnitedHealth Inc. Earnings (UNH)
  • Walgreens Boots Alliance Inc. Earnings (WBA)
  • Alcoa Corp Earnings (AA)
  • Commercial Metals Co. Earnings (CMC)
  • Del Taco Restaurants Earnings (TACO)
  • 6:00 PM IST: Initial Jobless Claims

Today’s Market Terminology: Bonus Shares

Bonus shares are additional shares given to the current shareholders without any additional cost, based upon the number of shares that a shareholder owns

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