Probably nobody was expecting the supply chain disruption caused by the pandemic is getting worse despite the COVID-19 vaccines have become available for nine months. Port congestions, factory closure in Vietnam, and labor shortages will likely hurt the U.S. retailers' near-term profits more than expected.
This week, FedEx reported a significant miss on EPS caused by a $450 million increase in labor costs. Even so, FedEx still cannot hire enough employees to run its logistic hubs at full capacity. What's worse, the inefficiency in logistic hubs has forced FedEx to reroute 600K packages per day, creating even more cost pressures. The management expects the short-term supply disruption to persist well into the next quarter and gradually improve in 2022, hopefully.
Nike's FQ1'22 earning was also hurt by supply chain disruption. Revenue missed the expectation due to the inventory shortage caused by port and rail congestions. Nike's SG&A expense was up 20% YoY on higher wages. The company also lowered its FY'22 revenue guidance as Asian factories need time to restart. It's all supply issues rather than demand as Nike's products remain very popular. In the quarter, Nike's digital sales were up 25% YoY, on top of an 83% YoY growth last year. Nike's investment in new digital services such as "connected member programs" and "O2O shopping features" will help cement the company's moat against smaller rivals going forward.
Costco, on the other hand, has handled the supply disruption much better through thoughtful planning. Bringing in items early, putting purchase limits on certain popular goods, and leasing ocean vessels have helped curb costs. In addition, Costco can pass part of the cost inflation to consumers. In terms of eCommerce, its digital revenue increased a decent 11.2% YoY on top of the last year's increase of 91%.
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