Shutdowns in Vietnam due to a COVID-19 resurgence are hitting athleticwear makers hard as they’re unable to supply enough shoes to consumers across the world.

(Bloomberg)—Nike Inc., No. 21 in the 2021 Digital Commerce 360 Top 1000, lowered its sales forecast as production and shipping delays hobbled the company’s efforts to meet strong demand for shoes and athleticwear.

Revenue rose 16% to $12.25 billion from $10.60 billion in its fiscal first quarter 2022 ended August 31, 2021. Nike’s online sales grew 25% and Nike-owned stores grew 24% in the quarter, according to CEO John Donahoe.

Nike’s digital sales—online and via its mobile apps—now represent 26% of its business.

“Even as physical retail revenue approach pre-pandemic levels, our digital business this quarter grew double digits,” Donahoe said on the earnings call transcribed by Seeking Alpha. “This is the result of an unwavering focus on our strategy and the investments we’ve made against our end-to-end digital transformation. And so, we continue to expect digital to be our leading channel for growth in fiscal 2022.”

Factory shutdowns

But sales for Nike’s second fiscal quarter may fall as factory closures in Vietnam prevent Nike from keeping up with consumer demand, the world’s largest athleticwear company said Thursday. That means full-year growth will be in the mid-single-digits rather than a low double-digit percentage rate Nike targeted earlier.

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Shutdowns in Vietnam due to a COVID-19 resurgence are hitting athleticwear makers hard as they’re unable to supply enough shoes to consumers across the world. Adidas AG sourced about a third of its production there last year. Puma SE CEO Bjorn Gulden said in July the company was trying to source more from China to make up for the drop in Vietnam.

Nike chief financial officer Matthew Friend outlined the issues during the company’s call with analysts. Most Nike factories in Vietnam remain shut due to government mandates and the company has lost about 10 weeks of production since mid-July, he said. Nike doesn’t expect the facilities to reopen until October, and they’ll take several months to ramp up manufacturing.

A spokeswoman for Puma said Friday that a few factories have started to operate in southern Vietnam recently and the company hopes for others to gradually open through October. Adidas said it’s also been temporarily reallocating production to other countries.

“It’s all about the inventory. Demand is clearly very high,” Bloomberg Intelligence analyst Poonam Goyal said on Bloomberg Television. “How much inventory is in transit, and is it enough to meet holiday demand?”

Nike’s inventories were at $6.7 billion for the quarter, which is flat from a year ago, according to Thursday’s statement. The company said in-transit inventories were high due to extended lead times.

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Shipping times from Asia to North America, meanwhile, worsened in the quarter, doubling to 80 days due to port and rail congestion and labor shortages. That’s left lots of inventory lingering in transit while margins were hurt by higher ocean freight surcharges.

“We had full-price inventory that was unavailable to use to serve current consumer demand in this quarter,” Friend said.

Sports return

Nike has gained steam in recent quarters as sports resumed in earnest, with fans packing stadiums and kids returning to school playing fields. That’s driven demand for sneakers and apparel around the world. Now, the prospect of meeting consumers’ voracious appetite during the holiday months seems daunting.

Cuts in wholesale distribution have put renewed focus on Nike’s direct-to-consumer channel, which grew 25% this quarter on a constant-currency basis.

Sales in China, meanwhile, which slowed last quarter after calls for boycotts over corporate statements on forced labor related to cotton production in the Xinjiang region, continued to be lackluster, rising 1% when adjusting for currency effects.

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