NIKE Inc. (NKE) is engaged in the design, development and worldwide marketing and selling of footwear, apparel, equipment, accessories and services. NIKE is a seller of athletic footwear and athletic apparel worldwide. The company sells its products to retail accounts, through NIKE-owned retail stores and Internet sales, and through a mix of independent distributors and licensees, in approximately 190 countries around the world.
The company focuses its product offerings in seven key categories: Running, Basketball, Football (Soccer), Men's Training, Women's Training, NIKE Sportswear (its sports-inspired products) and Action Sports. It also markets products designed for kids, as well as for other athletic and recreational uses, such as baseball, cricket, golf, lacrosse, outdoor activities, football (American), tennis, volleyball, walking and wrestling.
Strengths and Growth Opportunities
Nike has a high perceived value and is a hit among consumers who are brand conscious and are willing to pay a high price for high quality. It has a good brand reputation and is distinctively marked by its slogan Just Do It. Nike is continuously improving its products and so it can rightly be said that innovation plays a key factor behind its growth opportunities. Strong research and development, complementing innovation, expansion into trendy/fashion industry where not just athletes are targeted, but the general population where new competition can be met from alternative clothing lines are some the measures taken by Nike to sustain its growth.
Nike has no factories. It does not tie up cash in buildings and manufacturing workers. They manufacture wherever they can produce high quality product at the lowest possible price. If prices rise and products can be made cheaper elsewhere, Nike will then move production. Another one of Nike’s strengths is research and development; it is evident by its evolving and innovative product range.
The next five-year plan can involve a shift in Nike's focus from traditional division in categories like footwear, equipment, etc. to individual sports, selling of other assortments like sunglasses, hats and other accessories. On the other hand, Nike's strong financial performance will help it to cash in on new innovation with its robust R&D. Apart from the main focus on athletic apparel and footwear Nike can make further development in casual wear items. Further, Nike can inbuild RFID technology into its supply chain system which will help it in operating more efficiently in the market and also gain six sigma quality standards. There is also an opportunity to tap other market segments like Asian countries where disposable income of people is increasing and they are becoming more brand conscious.
International operations and sources of supply are subject to the usual risks of doing business abroad, such as possible revaluation of currencies, export and import duties, anti-dumping measures, quotas, safeguard measures, trade restrictions, restrictions on the transfer of funds and, in certain parts of the world, political instability and terrorism. Nike also faces stiff competition from Reebok, Adidas and other worldwide known brands who try to sponsor sports teams as well. Nike depends heavily upon its footwear. If Nike footwear has an internal downturn, then the company could collapse. Though Nike’s apparel sales continue to see impressive growth in the North American region, the demand recently weakened in Western Europe and China.
Revenues of Nike are expected to be in the range of $6.52 billion to $6.85 billion. Earnings per share estimates range from $0.69 to $0.80. Nike has beat consensus estimates for earnings per share in seven of the past eight quarters. Approximately 60% of Nike's revenues come from outside North America. Nike's shares have outperformed the broader market gauges in 2013, rising approximately 18% vs. the S&P 500's 13%.
Nike has had a good 2013: In its most recent reporting quarter, it beat analyst estimates by 6 cents per share and its stock is up by nearly 20% in the year-to-date. Nike is currently trading at a price-earnings ratio of 24x - a slight premium to the 23x of its industry.
As a consequence of its higher valuation, its dividend yield is also a bit lower at 1.4% compared to 1.8% for its peer group. However, unlike its peer group, Nike's dividends have grown by nearly 18% a year over the past five years compared to 12.5% for its competitors. That means that over time, Nike's effective dividend yield will catch up to that of its industry. Nike is expected to trade at $70 per share in the next 12 months. Nike has almost no debt which is a very good point going in favor of the company. It has quick and current ratios of 2.1 and 3.4, respectively.
The firm has been generating economic value for shareholders for the past few years, a track record we view very positively. Return on invested capital (excluding goodwill) has averaged 33.6% during the past three years. Nike has an excellent combination of strong free cash flow generation and low financial leverage. During fiscal 2010 through 2012, Nike’s apparel sales saw a 12.3% CAGR, which was higher than the growth rate seen for Adidas, Puma and Asics.
Nike is a global brand and is the No. 1 sports brand in the World. Nike is a very competitive organization and boasts of a very good leadership. Nike sponsors the top athletes and gains valuable coverage through the media. For the last 20 years there has been increase in demand for products in the sports clothing market which suggest that Nike will have a profitable investment if it continues business in the same industry. People are spending more on such products. Its market share in the global sports apparel market has historically increased from 3.9% in 2007 to 4.9% in 2012 as its apparel sales grew at a pace above industry average during the period.
Nike is expected to create value for its shareholders in the near future. Fitness consciousness, rising income levels in developing countries, the growing popularity of sports apparel for women as well as the trend towards stylish and comfortable sportswear are some of the factors that will add to the growth of Nike.