Earnings season is here. And as brands and retailers gear up to share their results, one theme is likely to dominate: supply chain challenges.
Analysts predict an earnings season characterized by ongoing supply chain problems that have had a particularly aggressive impact on the footwear industry. For starters, a global shortage of rubber and plastic, which are essential in the production of sneakers, has made it difficult for factories to produce enough product to meet demand. This is exacerbated by labor shortages and factory shutdowns abroad in China, Malaysia, and Vietnam. On top of material shortages, factory shutdowns, high freight costs, and port congestion are making it tough for retailers to secure enough inventory.
These supply chain disruptions could last through 2022 and well into 2023, said Bindiya Vakil, CEO of global supply chain monitoring company Resilinc.
Crocs and VF Corporation report quarterly results this week, and Skechers and Columbia Sportswear will release their latest financials next week.
VF Corp, which owns The North Face, Vans, Supreme and Timberland brands, among others, will likely report impact from supply chain issues, according to Williams Trading analyst Sam Poser, who advised investors in a note to lower their expectations for the company’s performance. (VFC beat expectations in its earnings last quarter, mostly thanks to its strength in outdoor and active.)
This quarter, VFC’s outdoor brands such as Timberland will likely see an impact from production and delivery delays.
“Timberland is a turnaround story, and supply chain constraints (both production and shipping) will likely slow the momentum,” Poser wrote. He added that the Vans and Supreme businesses will likely meet targets.
Factory shutdowns are casting a shadow on earnings expectations for Crocs as well. As such, investment research firm Jane Hali and Associates said it remains neutral on Crocs for Q3.
“We remain cautious with factory closures in Vietnam (a primary manufacturing region for the company) and overall supply chain headwinds,” the research firm said in a note, which also highlighted Crocs’ growing digital and DTC channels.
Despite the headwinds, some analysts remain confident on Crocs’ ability to drive demand and hit revenue target of over $5 billion in sales by 2026.
“We see best-in-class brand momentum driven by product innovation, personalization, powerful social and digital marketing campaigns, and a digital first route to market,” wrote CFRA Research equity analyst Zachary Warring in a note last week. “We see product adoption across all age groups, but especially in younger generations as social and digital marketing campaigns drive demand. We initiate Croc as a Strong Buy and our top pick in footwear.”
While demand is strong for many brands, executives will have to answer to more concerns about diversifying product sourcing and mitigating shortages in the coming quarters.
Some companies, such as Steve Madden, took early action. The company said in its Q2 call that it shifted almost half of its women’s production from China to Mexico and Brazil for the fall to alleviate backlogs.