Nike is one of the most recognizable brands in the world and despite high advertisement spending, competitors like Under Armour and Adidas are fiercely fighting for a piece of market share and are already catching up in the US market. Moreover, the footwear sector is facing its own headwinds overall, as it depends on consumer discretionary spending. However, Nike is continuously investing in new products and innovation, which enables it to create differentiated products that command higher prices and gross margins. Meanwhile, the company pays a below sector average dividend yield despite performing generous share buybacks. Going forward, strong competition, currency volatility and macro economic conditions can pose potential headwinds for the company.
The company has the 18th position of the world’s most valuable brands according to the Forbes list and its portfolio of brands includes NIKE, Jordan, Hurley and Converse.
The company invests in its store concepts to provide a unique experience to customers, which helps the company attract new customers and retain existing ones.
Nike Air Max
The company's Air Max technology has contributed in the creation of some iconic shoes that have resulted in strong sales for the company.
“Just Do It”
The company has one of the most recognizable slogans in the world, “Just Do It” which supports company’s marketing operations significantly.
The company managed to beat both EPS and revenue consensus estimates in fiscal Q3 2020 results.
The company’s direct consumer model requires substantial investments in equipment and leasehold improvements, inventory and personnel and certain stores have entered into substantial lease commitments. The high fixed costs could result in poor performance in the event of sales decline.
The company relies in high profile athlete endorsements. Failure to obtain high quality endorsements can affect the company’s image and financial performance.
The company rewards investors with dividends. The current dividend yield stands at 1.13% which is lower than the S&P 500 index dividend yield at 2.08%.
Nike Stock Performance YTD
The company's stock is down 14.13% year to date as at 18th of May 2020, under-performing the S&P 500 index that lost 11.36% during the same period.
Despite the company's revenues exhibiting positive growth in 2018, the company's EPS fell lower during the same period.
Nike is synonymous with innovative shoe products and the company is investing heavily in innovation to differentiate from the competition and mitigate pricing pressures. It’s latest Air VaporMax platform provides lightweight, consistent cushioning that lasts and is expected to support sales and gross margins.
NFL Contract Extension
Nike announced in March 2018 a long-term extension of its existing deal with NFL to offer its uniforms and sideline apparel during the games, ensuring its swoosh logo staying on the uniforms and keeping this stream of revenue for years to come.
The company acquired data analytics company Zodiac and vision company Invertex that makes customer scanning software. The acquisitions are part of Nike's latest "Consumer Direct Offense" initiative to boost sales by leveraging customer analytics and preferences through a personalized customer approach.
Despite its brand name, swoosh logo and slogan being well recognized, Nike can market its business in other major events, such as football, while also sponsoring other events except from sport, such as charities.
Nike can further expand its sales and profits through electronic sales and a direct-to-consumer plan while also introducing worldwide shipping, as it seeks further opportunities to gain market share around the world.
Being an athletics company, Nike can leverage its expertise and expand in other sports sectors to get more clients and/or athletes who participate in those areas.
Nike's deal with Amazon to sell Nike products directly to consumers is expected to benefit the company as it can utilize Amazon's vast distribution network.
The company manufactures the largest part of its products outside U.S in developing countries like China, Vietnam and Thailand. This is exposing the company to social, political and economic risks associated with the operations in these countries.
The company is losing market share in U.S which is the company's biggest market by revenue due to rising competition by Adidas and Under Armour that have launched initiatives to redefine their products.
The company generates a significant part of its revenues from international markets and as a result currency volatility can impact the company’s financial performance in an unpredictable manner.
The apparel retail industry depends on consumer spending and consumer sentiment that is in turn affected by the general macroeconomic conditions including interest rates, wage levels and job employment levels and household debt. Adverse developments these macro-economic variables may restrain consumer spending and impact the company’s and sector’s financial performance negatively.
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