What to Expect When Nike Reports Earnings Next Week: Supply Chain Impacts and DTC Strength

Nike is set to deliver financial results for the third quarter on March 21.

As supply chain headwinds and COVID-19 related lockdowns persists, analysts are overall skeptical about Nike’s ability to fully recover in Q3, though most agree that headwinds will level out in future quarters.

“We believe the company continues to work through its supply chain woes but has yet to be back at 100% full scale production,” wrote BTIG analyst Camilo Lyon in a note, giving Nike a “Neutral” rating due to a lack of visibility on a timeline for normalization.

For Nike, supply chain issues have impacted multiple regions and has included months-long factory closures throughout last summer and beyond. Nike had two months of no unit production in Vietnam when two of its footwear suppliers there stopped manufacturing in July. The halt in production continues to impact inventory and sales in regions like Greater China.

Last quarter, Nike reported revenues of $11.4 billion for Q2, up 1% year over year and flat on a currency-neutral basis. While revenues only grew slightly year over year, gains were offset by the supply chain problems.

According to Lyon, recovery in China has been impeded by renewed COVID-19 related lockdowns in the region, which could prolong the timeline for recovery in that crucial market to as late as the second half of fiscal year 2023.

However, these headwinds will likely be offset by strength in Nike’s DTC digital channels and growth in North America and Europe, the Middle East and Africa (EMEA), explained Stifel analyst Jim Duffy, who gave Nike a “Buy” rating.

“Nike continues to execute through external headwinds and global crosscurrents,” Duffy wrote. “Big picture, we are emboldened by the pace of DTC shift and digital engagement and expect the shift in consumer behavior accelerated by exceptionally lean marketplace inventories.”

Nike’s DTC channels have also been bolstered by the company’s move to terminate wholesale accounts with retailers like Zappos, Dillard’s, DSW, Urban Outfitters, Shoe Show and more. Nike has also cut back on the amount of product it is offering in existing vendors, such as Foot Locker, in order to consolidate distribution in its own channels.

“We expect this move to increase DTC brand traffic in-store via digital and improve brand margins,” read a note from Jane Hali & Associates (JHA) LLC.

Overall, Nike’s shift from wholesale channels has improved its DTC arm, which Baird analyst Jonathan Komp says is approaching 50% of its business in North America.

“Nike remains well positioned based on strategic shifts to DTC, with the latest move to reduce allocations to Foot Locker a positive in our view,” Komp wrote in a note.

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