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This Athletic Wear Giant Is Pulling Up For Growth

November 28, 2013 | About:
abirk

abirk

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NIKE (NKE) 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 Oregon-bases company 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. It sponsors the top athletes and gains valuable coverage through the media. For the last 20 years there has been an 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.

Financial Performance

Nike posted an 8% increase to $7 billion. Revenue growth in its main NIKE brand was up 7% and showed growth in Running, Basketball, Soccer, and Men's Training lines. Its gross margin increased to 44.9%. Its net income increased 33% to $780 million. As per the company, worldwide deliveries scheduled from September 2013 through January 2014 were 8% higher than the same period last year. During the quarter Nike repurchased a total of 8.4 million shares for roughly $526 million. Its women’s segment is doing considerably well. By 2017, the company expects the women's business to grow to $7 billion. This segment is expected to contribute approximately 19.5% of Nike's overall revenue by 2017.

Approximately 60% of Nike's revenues comes from outside North America. This sportswear giant has had a good 2013. 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.

Competition Faced

The company gets stiff competition from UnderArmour (UA). Both the companies are vying to capture the women’s wear segment. UA is about to spend $250 million to make a position among the women buyers. Management at Under Armour has embarked upon a robust advertising campaign geared toward female athletes, which includes the use of television ads and various social media platforms. The 'What's Beautiful' campaign has been backed by individual Under Armour stores that have been redesigned specifically with women in mind.

Another competitor is Lululemon Athletica (LULU). It is a leader in athletic apparel for women. This company remains a significant obstacle for Nike to make its mark among the female consumers. Lululemon has had great success branding its products toward lifestyle activities such as yoga and running. In 2012, the female business generated approximately $400 million in revenue, which is less than half the revenue of its male business. To rectify this, the company has embarked upon a robust advertising campaign geared toward female athletes.

Nike is currently performing well when compared to its peers. Nike's rich history with regard to footwear and its constantly innovative approach, particularly with regard to running/training and basketball shoes, has firmly cemented the company as the world's best sneaker brand in the minds of consumers. It may be quite impossible for Under Armour to overtake Nike in total footwear sales.

Counting On The Brand Converse

The acquisition of the brand Converse has proved to be beneficial. The addition is raking in annual revenue that is four times the purchase price. Nike has been expanding its training, running, and -- by way of its Converse brand -- casual lines. It is a high profitable segment as it doesn't require expensive Research and Development, or R&D, investment. Revenue from this brand is expected to be at $3 billion by the end of 2017. New market conversions will expand the brand’s image.

Inch by Inch Towards Growth

Nike has a $36 billion goal to hit by 2017. It will be a mixture of Nike brand growth, women's apparel, and a nice boost from iconic shoe brand Converse that will lead the charge of what amounts to more than 40% sales growth between fiscal 2013 (recently completed) and 2017.

The next five-year plan can involve a shift in Nike's focus from the 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. 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.

Concluding Hereby

One of the best things to see from a large company is its ability to return value to shareholders. Nike knows the opportunities that lay ahead with its Converse segment and has already started working to capitalize on it.

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.

Rating: 4.3/5 (6 votes)

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