Nike Still Has More To Offer Its Shareholders

Apr. 7.14 | About: Nike Inc. (NKE)


Nike continues to beat analysts’ earnings estimates.

Nike’s growth is backed by its innovation.

The 2014 World Cup and 2016 Olympics would make the Brazilian unit the third largest market for Nike.

Nike capitalizes on changes in consumer behaviors.

Nike Inc. (NYSE:NKE) is the world's leading designer, marketer and distributor of athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. As the world's leading athletic apparel innovator the company's stock has increased by more than 45 percent over the past year and approximately 238 percent over the past five years. The company has still managed to maintain its leading position and released its third quarter earnings on March 20th showing that it beat analysts' estimates. The emphasis of this report is on the recent performance of the company and the future growth prospective of the company to decide whether or not the company retains its leading position in the future.

Nike Grew Globally in Recent Quarter

Nike reported its third quarter revenue of $7.0 billion reflecting an increase of 13% from the same quarter in 2012 and beating analysts' estimate of $6.69 billion. Third quarter earnings per share were $0.76 also beating analysts' estimates of $0.72 per share. Other indicators were also moving in the right direction as gross margins improved 30 basis points to 44.5%, and future orders increased 14% on a currency neutral basis to $10.9 billion. In addition, Nike repurchased $788 million worth of shares in the quarter helping to reduce the number of shares outstanding.

The increase in revenues was basically driven by Nike's overall growth in its major regions. Nike brand sales in North America were up 12% to about $1.9 billion, sales in Western Europe were up 22% to about $1.3 billion, sales in Central and Eastern Europe were up 17% to $356 million, sales in China were up 9% to 697 million and sales in emerging markets were up 8% to $937 million. Japan is the only region where Nike sales declined by 9% to $177 million.

Growth Backed by Innovation

Nike's growth was fueled by the company's steadfast focus on bringing innovation to the market. Nike has recently introduced the new standard in performance football boots, the "Magista." With the radical new silhouette the boot is designed to enhance the player's fit, touch and traction for a game. The Magista soccer cleat is a big deal for Nike and appears truly capable of changing the way that players play soccer on a professional level and when this occurs on a global stage, like the World Cup, it only reinforces Nike's dominance in the minds of consumers and strengthens the company's control of the international market.

2014 World Cup and 2016 Olympics Would Make the Brazilian Unit the Third Largest Market for Nike

The FIFA World Cup is the most watched sporting event in the world. It is expected that billions of people will be watching when the quadrennial world championship of soccer unfolds in June in Brazil. The biggest footwear and apparel brands in the game are already rolling out products and preparing product activation plans for the World Cup. Nike and its close competitors Adidas are both confident that the World Cup's rising tide will help to increase overall footwear and apparel sales. Nike is set to supply the kits for more teams than Adidas for the first time ever at this year's World Cup. In addition, Nike's sponsorship of the host's national football team alone gives it a massive competitive edge that will be difficult for Adidas to close the gap on.

In the next two years by the time the 2016 Summer Olympics arrive the Brazilian unit will probably represent the third-largest market in the world behind the US and China. Nike currently had a 12.1 percent share of the Brazilian market compared to Adidas' 5.5 percent share and it is estimated that Brazil's general sportswear market will grow by $1.4 billion, or 12.5 percent, in this year alone.

Capitalize on the Changes in Consumer Behavior

The impacts of e-commerce and increasing advances in technology have created drastic changes in consumer spending habits. Consumers are moving away from physical purchases to various forms of digital spending. To capitalize on this trend Nike has been aggressively building its e-commerce business over the years. The segment grew its revenue by 32% and reached at $540 million in fiscal year 2013. It is expected that the company will grow to $2 billion by the end of fiscal year 2017. However, there is still substantial room for growth as e-commerce only represents 15% of Nike's total direct-to-consumer business. Nike will also begin selling online in Japan and Brazil and that will definitely boost the company's sales, especially in Brazil where the FIFA World Cup will begin in June.


The company has consistently outperformed and once again beat analysts' estimates on revenues and earnings per share. Moreover, the FIFA World Cup and Olympics will boost the company's market share in Brazil and the international market and will ultimately improve the company's top and bottom lines. The company is also improving the online channel to capture consumer trends in digital spending. Since the company has quite a decent outlook I would recommend buying the stock.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: The article has been written by APEX Financial Consultants. This article was written by one of our research analysts. APEX Financial Consultants is not receiving compensation for this article (other than from Seeking Alpha). APEX Financial Consultants has no business relationship with any company whose stock is mentioned in this article.