Oregon-based Nike (NKE) is one of the most recognized brands across the globe. The company, founded in 1964 as Blue Ribbon Sports, is still going strong even today. Known for its iconic slogan—"Just Do It"—Nike is the largest supplier of athletic apparel and footwear. It also designs, manufactures, and markets its own line of sports equipment as well. Nike has a series of brand names under its banner including Air Jordan, Nike Golf, and Nike Pro, as well as several subsidiaries such as Converse and Hurley International.
The company calls itself a “growth company,” which is a strong message about its attitude and intention. If Nike can live by that motto and continue with the momentum, its investors will surely be pleased. The company had a market capitalization of $243.9 billion as of June 2021.
- Nike is the world's largest supplier of athletic apparel and footwear in the world.
- The majority of Nike's revenue is derived from North America.
- The company's share price and financial performance is dependent on currency fluctuations, consumer tastes, growth in emerging markets, as well as technology.
Fiscal year 2020 ended with $37.4 billion in revenue. That's a 4% decrease from the previous year which the company attributed to the COVID-19 pandemic. The 2019 fiscal year saw revenues at $39.1 billion.
Converse and Hurley are Nike’s core subsidiary brands. Converse designs, markets and distributes athletic lifestyle apparel, footwear, and accessories. Hurley, on the other hand, designs, markets, and distributes surf and youth lifestyle footwear, apparel, and accessories. Market transitions to direct distribution in AGD and strong growth in the United States pushed revenue for Converse to $1.8 billion.
Excluding the revenue from Converse, Nike’s revenue was $35.6 billion. Geographically, Nike's revenue for the 2020 fiscal year was broken down as follows:
- North America: $14.5 billion or 41% of total revenue
- Europe, Middle East, Africa: $9.3 billion or 26% of total revenue
- Greater China: $6.7 billion or 19% of total revenue
- Asia Pacific, Latin America: $5.0 billion or 14% of total revenue
In 2019, the company’s net income increased to $4 billion compared to $1.93 billion from the 2018 fiscal year. This represented a 108% increase due primarily to growth in revenue, an expansion of the company's gross margin expansion, and a lower effective tax rate. As such, the company's board of directors approved an increase to its annual dividend, raising it from 88 cents to 98 cents per share. That translates to an increase from 22 cents to 24.5 cents per quarter for each share. The COVID-19 pandemic had a significant impact on the company, reducing fiscal year 2020 net income to $2.5 billion.
Nike's income statement also reflected an increase in its earnings per share (EPS), which rose by 114% to $2.55 in FY 2019 from $1.19 in FY2018. In FY 2020, earnings per share fell to $1.63, still above the FY2018 level.
What Investors Should Know
Some of the things investors should be aware of that impact Nike's financial and its stock include currency fluctuations, consumer tastes, geopolitical tensions, new technology, and personnel among others.
Analysts agree, though, that Nike is poised for continued growth, which should have an impact on the company's share price. That's because it is consistently focused on product and marketing innovation. The company remains committed to upgrading its digital footprint through its Nike Direct business, through which the company sells and launches new products online and also makes improvements to its supply chain.
Nike's consistent focus on product and marketing innovation should help keep it poised for growth.
Nike’s focus on brand recognition and growth via endorsements, along with investments in research and development (R&D) and demand generation, should continue to pay off. Additionally, the growing middle class in emerging markets, as well as greater China, should keep the demand for its products growing.
There may be a few hiccups, though. In October 2019, the company announced that its chief executive officer (CEO) Mark Parker, who led Nike since 2006, was stepping down, handing over the reins to John Donohoe. Donohoe was on Nike's board of directors and served as president and CEO of cloud computing company ServiceNow.
China is another key factor investors should keep an eye on. Because it is one of the company's largest growth markets, any detrimental news out of the country could have a big impact on share prices. For example, the stock took a hit after the company shut down or reduced hours in 75% of its stores in Greater China in the third quarter of 2020 because of the coronavirus outbreak.
The Bottom Line
Nike is a sound stock based on its steady stock performance and growth in earnings per share, revenue and net income, strong balance sheet, and management approach. But there is no risk-free stock—not even Nike. A slowdown in China, currency movement and growing competition are always concerns that could put a dent in the company's growth numbers. Although the positives should outweigh the negatives, the stock may seem expensive, especially when it trades around its 52-week high. There is potential in the company to justify those levels, but it would be wise to let it take a breather before you pick this sporting stock.
The author has no holdings in the stocks mentioned.