Nike shares fall as footwear giant could lose production of 160m pairs of shoes
Nike is at risk of losing the production of 160m pairs of shoes after the shutdown of factory operations in Vietnam due to Covid.
Nike shares were down 2.5 per cent on Tuesday morning after the sportswear giant was downgraded from neutral to buy at BTIG.
Manufacturing in the country was paused in July after soaring rates of the Delta variant.
Research company BTIG has anticipated the impact to the retailer could continue up until spring 2022 with fears of production challenges in the run up to Christmas.
The company was estimated to have lost around 80m pairs of shoes so far because of the Delta variant’s impact on production.
Wall Street analysts estimated another four months worth of 50 percent production capacity for a total of 160m pairs of shoes potentially lost this year.
This is compared to an estimated 350m shoes made last year in Vietnam.
Production will resume on Wednesday after an initial two week shutdown was expanded to nine weeks.
It will take Nike factories around five to six months to start delivering a normal output again, analysts have estimated, thanks to a backlog and social distancing measures.
They believe that factories will start delivering a normal output in around five to six months.
“Given the complexity around footwear manufacturing (versus ease of apparel), we do not believe Nike can shift production elsewhere to recover the lost units,” BTIG said.
“Over its history, Nike’s stock has been most tightly correlated with sales growth, so with growing evidence that sales will likely stall, we believe Nike’s stock will at best tread water until more clarity is had around its manufacturing issues, and at worst suffer from reduced sales guidance and ensuing multiple compression,” analysts added.
Several firms have been impacted by Vietnam’s latest Covid wave while regional restrictions have been imposed in Ho Chi Minh City.