Nike (NKE), the world's largest maker of athletic footwear and apparel with a market value of almost $50 billion, and Adidas (ADDYY.PK), the number two with a market value of $12 billion, should make good deals this summer for investors too.
Indeed, the UEFA Euro 2012 and the London 2012 Olympic Games are strong drivers tor the athletic footwear and apparel industry. As a result, Nike and Adidas expect to gain market share and increase their revenues over the next years.
Warm-up with the quarterly earnings
On one hand, Adidas announced results above estimates for the first quarter of 2012, driven by double-digit sales growth in all segments. Group revenues have increased by 17% to €3.8 billion ($4.8 billion) and the Group`s net income rose by 38% to €289 million ($364 million) or an Earnings Per Share of €1.38 ($1.74).
On the other hand, Nike reported better than expected third-quarter results (for the three months to February 29) with a 15% year-on-year increase in total revenues to $5.8 billion, beating expectations, after an increase in demand for the US sporting goods group's products in North America. The Oregon-based company earned $560 million, or $1.20 a share, compared with $523 million or $1.08 a share last year. Moreover, its futures orders for delivery from March through July have increased by 15% in comparison to the same period last year.
The first half: The UEFA Euro 2012
As soccer is the most widely followed game outside the U.S, Nike and Adidas can leverage the tournament to significantly increase their football footwear and apparel sales in Europe.
Adidas has six out of sixteen EURO 2012 nations wearing its jerseys, including Germany, Spain, Russia, Greece, Ukraine, and Denmark. Besides, the German group is also the official ball supplier of the tournament. Thanks to this exposure, the brand with three stripes targets €1.5 billion ($2 billion) of revenues in soccer this year.
As for Nike, it outfits five nations directly: France, Netherlands, Portugal, Poland, and Croatia, and three other through its subsidiary Umbro (Sweden, Ireland and England). This tournament is an important showcase for Nike and it is the opportunity to fuel its growth over the long term.
The second half: The London 2012 Olympic Games
The Olympic Games are the most televised sporting event in the world with over 5,000 hours of live coverage and broadcast in around 200 countries. London will host 21,000 media and broadcasters for the Olympic Games, as well as 800,000 spectators and 55,000 athletes/officials/media/sponsors on the busiest day of Olympic competition. According to the market research firm Nielsen, the Athens games in 2004 were watched by 3.9 billion people and the Sydney games in 2000 by 3.6 billion. The 2008 Beijing Olympics drew an estimated global television audience of 4.7 billion over the 17 days of competition. The 2012 Games are forecast to attract global television audiences of around 4 billion viewers. As a result, the Olympic Games should leverage the outstanding visibility of Nike and Adidas.
As official partner, Adidas takes centre-stage at the London 2012 Olympics. Indeed, the German brand is the official sportswear partner of the London Olympic Games. As such, it will dress the 70,000 Olympic volunteers and create clothing for the athletes to wear in the Olympic Village. The German sports goods maker expects to earn $ 150 million thanks to the Olympic deals alone and has invested $200 million in the 2012 Olympic Games. It includes the cost of becoming an official partner, the cost of manufacturing the clothes for the athletes and the volunteers and the cost of marketing the ranges and the company. Mr Hainer, the Adidas CEO, admitted that this investment is a great loss on short term basis but the long-term benefits for the brand and its standing will be multiple.
Nike is not an official partner of the event, but it is the official kit supplier of the US Olympic Committee, which will guarantee a significant exposure in U.S. television markets. Furthermore, Nike is the market leader in the United Kingdom with an 18% share of the $6.7 billion sportswear market (vs 15% for Adidas), and should push its merchandise on consumers through its Westfield London concept store. The store's prime location means at least 70% of ticket holders must pass by before entering the Olympic grounds.
This chart shows that Nike stock has on average outperformed the S&P 500 during the Olympic Summer Games except in 2008, gaining an average of 6% (1988-2004) in the two-week period from the opening to the closing ceremonies. Nike stock price has been especially boosted the Atlanta Games in 1996 (+7.55%) and by the Athens Games in 2004 (+7.23%). Adidas was listed in 1995 and I do not have the shares prices during the 1996 and 2000 Olympic Games.
Over the past Olympic years, the two companies have taken advantage of the event. Even if Adidas is a serious competitor, I expect Nike to end up at the top of the podium, as it has in the past four Summer Olympics.
As 2012 is an Olympic year, I would be long on Nike and on Adidas with respective target prices of $120 and $85 by the end of 2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.