Nike shares fall on lower revenue, Costco predicts higher costs after earnings beat

Yahoo Finance's Brian Sozzi and Julie Hyman break down the latest earnings reports from Nike and Costco.

Video Transcript

JULIE HYMAN: The companies sales missed estimates. And the company is cutting its sales forecast as well. And as Brian alluded to in our conversation with Lori, it has everything to do with the supply chain, in particular in Vietnam, Brian. That's because-- it's so interesting, because of the trade kerfuffles conflicts with China over the past few years in part, we've seen a lot of companies shift supply chain in part to Vietnam, right? Although, the movement had sort of preceded that as well. Now, a lot of factories are closed in Vietnam because of COVID. And that is presenting a real challenge for Nike and its peers.

BRIAN SOZZI: Yeah, there's a lot going on here, Julie. Let me hit a couple of points though real quick here. A lot of analysts that I've seen out this morning are out here defending Nike. Their main call-out, they are cheerleading the company's sales growth. And on that score, Nike did OK, considering they are having problems getting inventory.

I mean, North America sales up 15%. Europe up 8%. Asia-Pacific up 31%. That's good. But there are a lot of red flags in this quarter. And that's why you're seeing the stock down by about 5% here in the pre-market.

And as you mentioned, Nike said on its earnings call, lost 10 weeks of production because of Vietnam alone. And that production is going to take a while to get back up to speed. And I'll quickly pause here. We'll get that opening bell. Clearwater is, in fact, ringing that opening bell to celebrate their IPO.

[BELL RINGING]

We're waiting. And there we go, the opening bell on Wall Street on this Friday morning. Clearwater, again, ringing the opening bell because of their IPO. And Julie, on Nike, they lost 10 weeks of production on large part because of what's going on in Vietnam. It will take a while for those factories to get back up and running. And that is why Nike is out here reducing their sales guidance.

For the next 12 months, they're looking for sales to grow by mid-single digit percentage. Previously, they were looking for a low double digit percentage increase. So the street is not liking that downgrade in sales forecasts for Nike. For stock, no less, that continues to be priced for perfection, so they're taking some profits here.

I will add this too, Julie, and just listening to FedEx this week, now hearing this from Nike. It could be a pretty interesting holiday shopping season for US consumers. I would suggest get out there and do your shopping now because you might walk into a retail store and just may not be able to find your goods.

Nike noted their inventory was flat in the most recent quarter, despite double digit growth in their sales. That is telling you they just might not have stuff in their distribution centers to meet holiday demand. Very big red flag.

JULIE HYMAN: But forget about-- like all of these, I've been seeing a lot of those headlines, Brian. Go out and get your holiday shopping done early. There's a big problem with that, you can't get the stuff now. You just said it. You can't do your holiday shopping now because you can't get the stuff now either. So maybe you just need to keep going back until the stuff that you want is in stock and put in a pre-order now.

I mean, Nike will let you usually do pre-order or put in some kind of alert to get it. So that's a little bit of a wrinkle in that shop early plan. I would mention also, by the way, and you have been flagging this consistently, this isn't just a problem for Nike. It's not just a problem for FedEx. If you look at the whole sort of athletic shoe universe, right? Foot Locker, I remember you sort of grilling the CEO on in-stocks or out of stocks there and some other athletic apparel retailers.

I've been seeing it on the ground in shoe shopping for my kids for back to school, right? We've heard other retailers make those comments, we've heard other shoe makers make these comments as well. Folks from Adidas, from Puma are also talking about shutdowns in Vietnam. So this is a whole ecosystem issue here.

BRIAN SOZZI: Well, there is one issue. There's one solution to this, Julie. One, just go out now and buy everybody gift cards so they can go spend it when all these goods magically return the stores at some point.

JULIE HYMAN: So it's there problem.

BRIAN SOZZI: In 2023. Or just adjust your expectations, go out and buy something else. Buy a pair of Reeboks.

JULIE HYMAN: You know, or maybe go on Etsy and get something handmade. I don't know.

BRIAN SOZZI: Or you just get nobody anything. Save the money and go out and buy some crypto on the pullback. I don't. Maybe different strokes for different folks.

JULIE HYMAN: Wow. Getting creative here. Maybe you can bake a cake for people and do that now. Let's talk about Costco too because speaking of shortages, speaking of prices going up, Costco is yet another example of that. Now, the numbers beat here, but Costco said prices are going up 3.5% to 4.5%.

They had previously predicted price increases, but this is a percentage point higher than the price increases that they had predicted before. And guess what else? I mean, again, speaking about out of stocks, Brian, they're coming out here and now saying they're not going to let you buy as much toilet paper.

BRIAN SOZZI: Yeah. Well, as long as they have steak, my brother just picked up some amazing ribeye steak from Costco over the weekend for his birthday. I mean, I've never even seen steak this size. But that's different. As long as I have that in stock, I'm cool.

But there are a couple of interesting things on this earnings call too as well, Julie. A lot of out of stocks. And, again, even Costco, to your point, is dealing with supply chain problems. Now, I have covered Costco, I think, for close to 15 years, maybe eight years as an analyst and now ever since as a journalist. I've never heard them talk about ocean freight on their earnings calls. Never, ever, ever.

Now, here's what they noted. They have said they have chartered three ocean vessels for next year to transport containers between Asia and the US and Canada. So you have Costco now taking out time or spending for ocean vessels just to get the products they need to the store. It's just fascinating development there for Costco. Will, in fact, raise their cost base.

And then to your point on out of stocks, yes, that is absolutely happening at a Costco and many other retailers. They're also talking about significant price increases in plastics, resin increases, trash bag price increases. Makes you think how the quarter is going at Clorox, Ziploc, Skus, pet products, plastic cups, plates, plastic wrap. I mean, they're calling out price increases of 5% to 11%. That's not transitory inflation. Sorry to Brian Cheung and his Federal Reserve friends. And that is not transitory inflation, that stuff is continuing.

JULIE HYMAN: Well, how long is transitory?

BRIAN SOZZI: Well, it's been like six months.

JULIE HYMAN: I mean, is it transitory, six months? All right, well, that's still not--

BRIAN SOZZI: That's stick inflation.

JULIE HYMAN: I don't know. We'll see. We'll see how long it lasts. But what's interesting also is that in the case of Costco versus Nike, you've got Costco shares going up. The company not cutting its sales forecasts. The company actually raising its earnings per share forecast for the full year. So just seeing how different companies managing this. And, obviously, in a very different industry. So Costco is still going to have enough stuff to sell here.

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