Why Nike Has The Edge Over Adidas

Aug.10.14 | About: Nike Inc. (NKE)

Summary

Adidas share price fell over 15% during the FIFA World Cup, despite the fact that the company sponsored both Argentina and Germany, the finalists of the tournament.

Nike’s reported sales in Western Europe were up 14% for the full fiscal year.

Adidas is cutting its profit outlook that pertains to concerns surrounding consumer spending and the rising tensions between Russia and Ukraine.

With Football World Cup recently concluded, all eyes are set on sports giant Nike (NYSE:NKE) and its future in the sports industry. It is only fair to evaluate Nike's success by taking a close look at its current performance to rank its prospects in the market.

Smart Promotional Strategies Are the Winners

Gods are smiling at Nike as product revenue jumped to $7.43 billion, surpassing the estimate of $7.34 billion - an increase of 11%. The boost in revenue is brought forth by North America and Europe as the demand for both apparel and footwear has witnessed a steady increase.

FIFA World Cup gave Nike's revenue a much-needed kick in the positive direction. Savvy marketing promotions resulted in a higher topline. As a consequence, Nike was able to make outfits for 10 teams and introduced 4 new soccer shoes right before the start of the tournament. This indicated that Nike was the most worn footwear on the ground - more than any other brand throughout the championship.

Nike has also been smart about making endorsement deals with some of the most popular sportsmen including Michael Jordan, possibly the best campaign in sports history. Among other NBA super stars are the likes of Lebron James, Kevin Durant and Kobe Bryant. This clearly helps the brand develop and sustain a commendable market amongst cutthroat competition. Adidas (OTCQX:ADDYY), Nike's topmost competitor only managed to sign three sponsorship deals in contrast to ten by Nike.

Adidas vs. Nike - The Game is on!

Nike Inc. shares have dropped for a consecutive straight day. Adidas, during the World Cup, happened to see both its sponsored teams Germany and Argentina making it into the finals but still have witnessed a drop of 17% in its shares while Nike have faced a drop of only 4%. Adidas is cutting its profit outlook that pertains to concerns surrounding consumer spending and the rising tensions between Russia and Ukraine. Moreover, Adidas produced an excessive golf inventory that received lukewarm response in terms of its TaylorMade golf gear in the market.

Although, sluggish in the US market; the golf demand is still steady in Europe and Asia. According to experts, Adidas outdoes Nike and others in terms of marketing which is the reason the profits are also hurt. According to ISI Group analyst Omar Saad, Adidas's selling, general and administrative expenses as a percentage of sales is about 42%, versus 32% for Nike and about 37% for Under Armour UA +0.53% .

Nike's Strong Fronts

Nike is primarily a front-runner in basketball and running divisions as the company is constantly innovating to incorporate brilliant ideas and adding exciting products such as Flyknit, Lunar, Nike Free and Dri-Frit. All these products are well received in the market and only provide further boost to Nike's revenue in the coming quarters.

Nike has recently declared its future deliveries to have increased by 11% over last year. Therefore, it's pretty evident that the company expects 11% more sales for the next quarter.

The profit warning from Adidas is an indication of Nike's strong presence especially in Adidas' home market, Western Europe. According to several reports last year, Nike has gained market share from Adidas in Western Europe which is a forewarning for Adidas to buckle up or lose their dominance in the region. As per Nike's latest earnings report, sales in Western Europe were up by 14% for the full fiscal year. With all these facts, it may be no surprise for anyone that Nike may take over from Adidas in the upcoming year.

Conclusion

Nike is certainly the horse to bet on as they are constantly keeping Adidas on its toes. With highly energized marketing and sales strategies, signing up top-notch sportsmen including Brazilian star Neymar, higher future orders and the capacity to include inventive technology in its products; Nike is certainly a force to be reckoned with.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.