By Uday Sampath Kumar

(Reuters) – Are sneakerheads in for a rough holiday season?

Nike Inc (NYSE:)’s updates to its full-year sales outlook on Thursday will likely answer that pressing question for Wall Street as the world’s largest sportswear maker deals with unprecedented supply challenges ahead of the holiday season.

Nike’s outlook for 2014 was positive three months ago due to the fact that it had been benefited by consumers spending on running shoes and hiking boots as they return to normal after more than a year away.

Some analysts are lowering their expectations for Nike’s sales. They predict that factory lockdowns and closures in Vietnam (where about half of Nike shoes is made) will lead to shortages at the critical shopping season.

“We believe that the likelihood of significant cancellations commencing this holiday season and lasting through at most next spring has risen significantly for Nike since it is currently facing at minimum two months with virtually no production at its Vietnamese factory,” BTIG analysts said in a memo.

Graphic: Where Nike gets its products made: https://graphics.reuters.com/NIKE-RESULTS/zgpombjewpd/chart.png

THE CONTEXT

Many factories in Vietnam’s manufacturing hubs have been shut or are operating with drastically fewer on-floor workers since mid-July as a surge in Delta variant cases forced the government to implement tight containment policies.

Other apparel companies including Abercrombie & Fitch and Adidas AG (DE:) have taken a hit to their businesses due to production issues in Vietnam.

Analysts believe Nike could use its massive scale to counter the Vietnam closures’ impact on sales.

According to Telsey Advisory Group analysts, “The company should have the ability to mitigate some headwinds through shifting production to countries like China and prioritizing top-sellers, key products and its DTC channel (direct-to consumer) channel.”

THE FUNDAMENTALS

* Since the start of September, analysts have cut their full-year sales expectations for Nike to $49.81 billion from $50.34 billion due to worries about supply shortages

* Full-year earnings per share estimates have also fallen to $4.24 from $4.33, according to IBES data from Refinitiv

* Nike’s revenue for the reporting quarter is expected to have risen 17.7% to $12.46 billion from a year earlier

* The blue-chip stock has gained 11% this year, but is down about 10% from its record high hit in August

WALL STREET SENTIMENT

* The current average analyst rating on NKE shares is “buy”, with 28 rating it “strong buy” or “buy”, four rating it a “hold” and one rating it a “strong sell”.

* The median price target is $185. The stock closed at $155.02 on Tuesday

QUARTER STARMINES REFINITIV ACTUAL BEAT, SURPRISE %

ENDING MARTESTIM IBES MET,

ATE® ESTIMATE MISSED

May 0.52 0.51 0.93 Beat 82.7

31 2021

Feb. 0.77 0.76 0.90 Beat 18.1

28 2021

Nov. 0.63 0.62 0.78 Beat 25.1​

30 2020

Aug. 0.44 0.47 0.95 Beat 102.5

31 2020