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‘Next Era’ Nike Won’t Let Supply Struggles Slow it Down

The minimal revenue gains Nike reported days before Christmas aren’t stopping analysts at Guggenheim Securities from naming the footwear mega-giant their “Best Idea” going into 2022.

In a note sent to clients Friday, Robert Drbul and Arian Razai wrote that the dominant market share Nike currently commands “will grow materially as digital scales further, new product innovation remains robust and heavy investment behind key growth drivers continues.” Though the analysts acknowledged the impact of “short-term operational dynamics” such as shipping delays and the “longer-than-expected” shutdown in Vietnam, they said they still believe the long-term framework Nike laid out in June “remains quite attainable.”

“Under the leadership of CEO John Donahoe, Nike is rapidly embarking on the next era of its company history; we expect this to be digitally led and likely defined by even greater separation vs. industry peers as well as from Nike’s own historical rates of productivity, consumer engagement, and financial performance,” Drbul and Razai wrote, highlighting the Oregon company’s swift “engagement” with the Metaverse.

Guggenheim Securities, the investment banking and capital markets business of Guggenheim Partners, also noted lingering “geopolitical issues” in China. Last March, Nike was one of numerous Western brands facing a consumer boycott for its statements on sourcing from Xinjiang, the Chinese cotton-producing region linked to the forced labor of Uyghurs and other Turkic minorities. Less than two months later, early May Tmall sales data showed Nike sales down 59 percent. Though the company’s reported sales in the region never fell that far, year-over-year comparisons remained low in the quarters ended May 31 and Aug. 31 at 9 percent and 1 percent, respectively.

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Last month, Nike revealed that sales in the quarter ended Nov. 30 dropped 24 percent on a currency-neutral basis. Rather than attributing the decline to the boycott that started in the spring, executives instead cited low inventories due to Covid-related factory shutdowns in Vietnam and lockdowns in local markets. According to chief financial officer Matt Friend, 25 percent of partner retail stores were impacted in some way by local mandates, as well as 50 percent of Factory Stores.

In the note they sent out after Nike released its earnings last month, Drbul and Razai said they maintained their “long-term view on China for Nike as we are confident in the brand strength opportunity in the region.” On Friday, they reiterated this view.

The analysts also highlighted the newly public sustainable footwear firm Allbirds, projecting 25 percent to 30 percent revenue growth over the next three to five years due to its “strategic” brick-and-mortar expansion and increased product assortment in both shoes and clothing.

“As numerous growth strategies implemented by this team take hold, we foresee continued market share gains for sustainable fashion as well as gains from overall footwear and apparel and believe that [Allbirds] is in a very strong position to lead the way,” the analysts wrote. “With just 11 [percent] aided brand awareness, we believe the company has significant white space for growth as Allbirds introduces itself to new consumers and also benefits from repeat customers who are willing to try different products.”

When Allbirds released its first-ever earnings report in late November, its revenue for the first nine months of the year was up 29 percent year over year. In the third quarter alone, sales rose 33 percent. Despite these gains, Allbirds posted a net loss of $13.8 million for the quarter. Year-to-date, it had recorded adjusted earnings before interest, taxes, depreciation and amortization loss of $12.1 million.