Nike’s supply chain problems in Vietnam could mean future challenges for Dick’s Sporting Goods

The slowdown in Nike Inc.’s supply chain could also dampen the momentum of Dick’s Sporting Goods Inc., according to Wells Fargo, which says it prefers Academy Sports and Outdoors Inc. instead.

The spread of COVID-19 has led to plant closures in Vietnam, where much of the sports equipment for companies like Nike NKE,
Adidas AG ADS,
and newly public On Holding AG ONON,
is made.

Concerns are growing about what this and other supply chain hurdles will mean for the holiday season.

READ: Buy early and expect to pay more: Supply chain issues could be a stumbling block for optimistic holiday shopping forecasts

“Dick’s spoke out on the obscuring of the visibility of stocks in 4Q21 / 1Q22 after the closures in Vietnam (which now last at the end of September), informing of its negative outlook for 2H accounting at a low to mid-digit figure,” Wells Fargo said in a note.

Dick’s DKS,
has been on analysts’ radar after reporting record sales and profits in late August. Raymond James, for example, said the company has been doing well for longer than expected.

However, problems all along the supply chain, from manufacturing to transportation of goods, pose a threat.

“While investor interest in supplier supply chains remains heightened, we believe there may be more flexibility in clothing compared to technical athletic footwear,” Wells Fargo said.

TOO: Swiss running shoe maker On targets high-end market – with help from tennis giant

“While Academy and Dick’s have diverse supplier bases (1200/1300, respectively), we are also aware of concentration risk, with Nike at 12% / 19% exposure. “

Wells Fargo notes that both companies have strengths, such as free cash flow generation.

ASO Academy,
also reported higher than expected earnings earlier this month.

“We have a large assortment, so we have a large supplier base,” CFO Michael Mullican told MarketWatch after the results were announced. Mullican attributed the strong position in the company’s supply chain to the relationships the Academy developed during the pandemic.

“We continued to move products and pay partners,” he said.

A more diversified commodity leads to more varied purchases by consumers.

“You can walk across the aisle and pick a new hobby,” Mullican said. “We are not for the professional athlete, we are for everyone and anything you want to do to support the fun lifestyle.”

DO NOT MISS : Nike could lose production of 160 million pairs of shoes due to shutdown of COVID-related facilities in Vietnam, BTIG says

In a separate note, Wells Fargo launched the first of its annual sporting goods survey, finding that 30% of August survey participants exercise more now than before COVID. While some categories, such as hiking and camping, indicate a slowdown in the near future, clothing and footwear are of great interest to consumers.

“Our view is that some ‘unified’ categories in sporting goods will have a hard time coping with the tough 2020/2021 comparisons, but clothing and footwear may benefit from additional spending in particular,” Wells Fargo said. .

Wells Fargo rates Dick’s stock equal weight with a price target of $ 140 and the Academy’s overweight with a price target of $ 55.

Dick’s shares have climbed 134.6% year-to-date. The Academy climbed 108.7%. The benchmark S&P 500 SPX,
is up 16.1% over the period.

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