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Panos Mourdoukoutas
Panos Mourdoukoutas
Articles (9) 

Nike Does It Again

Sports apparel company lights up Wall Street with strong revenue and earnings

September 22, 2020 | About:

Nike Inc. (NYSE:NKE) has a history of beating Wall Street estimates, which it did this time around.

The footwear and athletic apparel company reported on Tuesday it earned 95 cents per share in the first quarter of 2021, almost double what analysts had anticipated. Revenue came in at $10.59 billion, ahead of the $9.11 billion expected thanks to an 82% surge in online sales.

Investors were impressed by Nike's performance, sending its shares higher in after-hours trading.

That's a vote of confidence for Nike's management, which has effectively managed capital—the company's return on invested capital exceeds its weighted average cost of capital by a wide margin.

Company

ROIC

WACC

Excess return (ROIC-WACC)

Nike (NYSE:NKE)

15.54%

5.91%

6.63%

Adidas AG (ADDYY)

4.25%

4.07%

0.23%

Deckers Outdoor Corp. (NYSE:DECK)

31.68%

6.33%

25.35%

Nike accomplishes this through multiple advantages that form "moats" around its business, limiting the entry of new competitors to its market.

One of these advantages is branding, a strong image among its customer base—a must-have mentality that allows the company to charge premium prices.

Then there's scale, the cost savings associated with a larger corporate size. Nike has close to $37.4 billion in revenue, almost twice its closest competitor, Adidas.

And there's scope, the cost savings associated with offering different products by a single company for sale. Nike has a broad range of shoes, clothing and gear for men, women and children.

Another advantage isinnovation, the discovery of new products that have several distinct characteristics separating them from conventional competing ones –these traits stir up emotions and appeal to consumers' tastes.

Nike's products have all these features, and then some. They are also known for featuring the names of professional athletes. For example, the Nike Air Jordan Retro XI sneakers are modeled after the 1996 originals designed for Michel Jordan when he played for the Chicago Bulls.

This strategy adds a sensation to Nike's products and keeps the buzz alive even when a pandemic keeps consumers confined in their homes.

Disclosure: I own shares of Adidas.

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About the author:

Panos Mourdoukoutas
I’m a Professor of Economics at LIU Post in New York. I also teach at Columbia University. I’ve published several articles in professional journals and magazines, including Forbes, Barron’s, The New York Times, Japan Times, Newsday, Plain Dealer, Edge Singapore, European Management Review, Management International Review, and Journal of Risk and Insurance.

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