Nike has seen a phenomenal rebound in its business from the lows during the pandemic. Revenue in Q1 (ending 31 August) was $12.3bn vs est. $12.5bn up 16% y/y and gross margin was 0.2%-points better than expected at 46.5%. EPS was $1.16 vs est. $1.12 up 22% y/y. However, shares traded 4% lower in extended trading as comments on the conference call about shipping times from Asia to North America had doubled to 80 days and all of its footwear factories in Vietnam were currently closed due to Covid-19 restrictions and were not expected to reopen until October.
The significantly lower inventory level of Nike is evident of these supply chain issues and company also warned that higher ocean freight surcharges would eat to margins. On the positive side, Nike’s direct-to-consumer channel grew revenue 25% on a constant-currency basis, which is key for Nike’s future margin expansion. The message from Nike was an echo of FedEx indicating that the Q3 earnings season could very well be all about margin pressure and could become a net positive for technology companies that operate under fewer constraints in the physical.