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It’s not just your fluffy winter pajamas being affected by global supply chain snarl-ups. Your summer shorts could be too.
Under Armour Inc, the sportswear maker, warned that the impact of bottlenecks could continue into its spring and summer seasons. Higher shipping costs could last for much of this year too.
The current effects are a continuation of the supply-chain disruptions that struck apparel-makers last year. Amid factory shutdowns in Vietnam from July through to September, Under Armour, like other retailers, was faced with a production backlog. Clogged ports added to the pain. Instead of having goods arrive late and being left with too much stock, the company chose to cancel the orders. This means it won’t have as many pairs of sneakers or yoga pants in retailers’ stores this spring.
Under Armour shares fell around 10% — the most in more than a year — despite the fact that it upgraded its forecast for sales growth in the three months to March 31. It said it expected a 10 percentage-point drag on revenue in its spring-summer season from the cancelled orders. The gross margin is also expected to be 2 percentage points lower this quarter, reflecting more costly shipping, only offset slightly by price rises.
Still, the share price reaction looks harsh. Many other apparel companies — particularly the sportswear brands — were affected by the staffing problems in Vietnam. (Under Armour makes about 50% of its products in the Asia-Pacific region.)
And while Under Armour will lose sales from canceling orders at a time when demand is strong, the alternative would have left it with too much stock that it would have had to mark down sharply. Victoria’s Secret & Co also canceled holiday inventory that was in danger of arriving late. It will be worth watching whether this, rather than hefty markdowns to clear old stock, turns out to be the biggest legacy from
the industry-wide supply problems.
Either way, Under Armour’s warning is a stark reminder that the supply-chain issues that caused so much consternation in the run up to the holidays last year didn’t get thrown out with the Christmas tree trimmings. They will stick around for much of this year too. That means more headaches for shoppers and investors alike.
—Bloomberg