Nike provide chain issues in Vietnam may imply challenges forward for Dick’s Sporting Items

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

The spread of COVID-19 resulted in factory closures in Vietnam, where much of the sports equipment for companies like Nike NKE -1.46%,
Adidas AG advertising, -0.73%,
and newly listed On Holding AG ONON, made -10.09%.

Concern about what these and other hurdles in the supply chain will mean for the holiday season is growing.

READ: Shop early and expect to pay more: supply chain issues could be a stumbling block to improving positive Christmas shopping forecasts

“Dick’s has been vocal about clouding inventory visibility in 4Q21 / 1Q22 following the Vietnam lockdowns (now in late September) and sharing its negative double-digit to mid-single-digit 2H compositional outlook,” Wells Fargo said in a note.

Dick’s DKS, -2.00%, was on analysts’ radar after record sales and earnings were reported in late August. Raymond James, for example, said the company has been doing well longer than expected.

However, problems loom along the entire supply chain, from manufacture to the transport of goods.

“While investor interest in supplier supply chains has continued to grow, we believe apparel could be more flexible than technical athletic shoes,” said Wells Fargo.

EVEN: The Swiss running shoe manufacturer On relies on the premium market – with the help of a tennis giant

“Although Academy and Dick’s have different provider bases (1200/1300 each), we are also aware of the concentration risk, as Nike is exposed to 12% / 19%.”

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

Academy ASO, -3.06% also reported gains that exceeded expectations earlier this month.

“We have a wide range, so a broad supplier base,” said CFO Michael Mullican to MarketWatch after the profit announcement. Mullican attributed the company’s solid position in the supply chain to the relationship academy developed by the pandemic.

“We were still in the process of moving product and payment partners,” he said.

More diverse goods lead to more diverse purchases by consumers.

“You can go across the aisle and take up a new hobby,” said Mullican. “We’re not for professional athletes, we’re for everyone and whatever you want to do to support the fun lifestyle.”

DO NOT MISS: According to BTIG. Nike could lose production of 160 million pairs of shoes due to COVID-related plant closings in Vietnam

In a separate note, Wells Fargo launched the first of its annual Sporting Goods Survey and found that 30% of respondents now do more exercise in August than they did before COVID. While some categories, like hiking and camping, are showing signs of slowing down in the near future, apparel and footwear have great consumer interest.

“We believe that select, more” unique “categories within sporting goods will have difficulty outperforming difficult comparisons between 2020 and 2021, but that apparel and footwear in particular can benefit from incremental spending,” said Wells Fargo.

Wells Fargo rates Dick’s stock with a price target of $ 140 equally weighted and Academy with a price target of $ 55 as overweight.

Dick’s shares are up 134.6% year-to-date. Academy is up 108.7%. The benchmark index S&P 500 SPX rose by 16.1% to -2.05% over the reporting period.

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