Nike - Just Do It

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Nike is an American manufacturer of athletic footwear and apparel, headquartered in Oregon. The company is the world’s largest supplier of athletic footwear and apparel and a major manufacturer of sports equipment. Nike was founded in 1964 as “Blue Ribbon Sports” by Bill Bowerman and Phil Knight, and was officially named Nike on May 30, 1971, after the Greek goddess of victory.

Initially, Nike operated as a distributor for Japanese Onitsuka Tiger shoes, but later began manufacturing its own products. Bowerman’s ingenuity led to the creation of the “Moon Shoe” in 1972, and since then, the company has grown tremendously. Nike is especially known for its “Just Do It” slogan and its Swoosh logo.

Nike's Logo: Iconic Swoosh Stuns Consumers Through ...

Nike went public in 1980 and expanded internationally. The company has acquired several brands, such as Converse and Hurley, but has also sold some of its holdings to focus on its core business. Today, Nike is one of the world’s most valuable sports brands, employing over 76,000 people worldwide.

More from an investor’s perspective

In 2023, Nike achieved a record revenue of 51.2 billion, which was 10% more than the previous year. Nike Direct sales grew by 14%, accounting for approximately 44% of the brand’s total sales. Gross margin declined due to higher production costs, discounts, and unfavorable currency exchange rates for the company. The company returned $7.5 billion to shareholders in share repurchases and dividends. Return on Invested Capital (ROIC) was 31.5%, compared to 46.5% in the previous year. Nike faced supply chain challenges, but despite these, consumer demand remained strong.

In 2023, Nike’s sales were distributed regionally as follows: North America (42.2%), Europe, Middle East & Africa (26.2%), Greater China (14.2%), Asia Pacific & Latin America (12.6%). By product category: footwear (64.7%), apparel (27%), Converse (4.7%), equipment (3.4%).

So, how did Nike do recently?

https://x.com/EconomyApp/status/1806461761970897156

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Kuva

It is predicted that the company’s revenue will decline in fiscal year 2025. This raises investor concerns about Nike’s ability to stop losing market share to new competitors such as On and Hoka. According to analysts, Nike must keep up with developments through product innovations, among other things. The company has initiated cost-saving measures and new product launches, but competitors’ market share has grown significantly. Nike’s market share in the United States has declined, which may indicate that the company is in real trouble.

On the other hand, we are in the fashion industry, so the direction can change quickly… and surely Nike has the potential to innovate its way to the top and grow effectively.

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Kurssien ja niiden muutosten kyselyt, kauhistelut ja hehkuttelut (Osa 3)
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Once a customer is lost, they don’t necessarily return. For example, Hoka is strong in running shoes. Once Hoka, always Hoka. You don’t just switch brands anymore if something works. Have they, for instance in Finland, somewhat ruined the whole brand with cheap Nike T-shirts at XXL? Even in Stockmann’s sportswear department, other brands are dominating these days. Is Nike no longer Apple but a tired Nokia? It was a costly mistake back in the day to believe that Nokia would still make a comeback and beat Apple’s phones. Time will tell…

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I would be a bit careful and making similarities to Nokia. That is unfair to Nike (note I/we own Nike shares bought in 2017 and 2022, added yesterday as well).

Nike has some current challenges, but I view these as cyclical and natural in their business environment. There are up and downs, and new competitors (now Hoka etc) arrive all the time. But this is the name of the game. We bought Nike in 2017 when there was the Adidas Yeezy boom and everyone thought Nike was out of the game.

Nike (along with Adidas, which now has corrected this) have tried to improve their margins by cutting out the retailers, such as Stockmann which has resulted in that new entries such as Hoka have gained shellspace. Nike tried to sell only via their own webpage, which is clearly not working. They need to stay relevant and innovate by using the retailers as shopping channels as well.

Nike’s down turn might continue for some time but Nike trademark is above and beyond competitors such as Adidas, Underarmour, Lululemon and also upstarts like Hoka and On etc.

Nike EPS is currently 3.72 usd and the share trades at 75-76 usd. That equals ca 20 P/E which is not too bad considering the quality company that it is. The share will probably go lower in the near future but long term investors might compelled to look at Nike in more detail now…

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I’ve researched Nike for less than ten hours, so I don’t really know anything about it. And I won’t include my own experiences here, and even if I had researched for dozens and dozens of hours, my expertise would still be 2/5 as an investment target and in general.

I wonder if Nike has had many situations like this during its long history, and how long it has taken to recover from them, etc. In other words, is this likely to take a long time, even if the right things are being done? I have all sorts of basic thoughts on what could happen, but they don’t really matter as such. :slight_smile:

Nike has opportunities to grow in places like Brazil, India, and China, if I’ve understood correctly. As I understand it, there’s quite a bit of room for improvement in the supply chain and on the retail side. Moving away from wholesale in the United States could reportedly improve margins.

Innovations and… sigh… I’m tired of saying it, but AI stuff :smiley: could be new growth drivers. During the pandemic, Nike succeeded in the e-commerce sector, so the company is certainly capable.

It seems to be the case that Nike is seen as somewhat “tireder” than before, but I haven’t looked into it and my own perceptions don’t matter much. The company or products need to renew themselves, but there’s always a large group of buyers for the more traditional Nike; however, I can’t say anything more specific about what they should or shouldn’t do. Sometimes a brand’s rise (or fall) happens surprisingly quickly.

The new Bond, i.e., @Verneri_Pulkkinen, will lead Nike to new glory:

Finnish brunette man rises in Nike speedos walking out of the sea like James Bond. The man has a short beard

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Hi, you should definitely also consider reading the Nike-related book Shoe Dog.

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It tells the company’s story really well.

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I agree that Nike is somewhat “tired” these days. During the pandemic, the most popular sneakers were largely Dunks, Jordans, and Air Forces, all of which I find hideous.

Now the fashion scene has returned to that 90s style, which has allowed Adidas to take over the market in terms of fashion and casual footwear.

I don’t know if things would be different for Nike if the aforementioned models could actually have been purchased without raffles. Of course, it could be that people simply got tired of having to pay a hefty premium for these hype models if they weren’t lucky in the draw and a specific model happened to appeal to their taste.

Summa summarum; Nike has driven itself to this point by assuming their sneakers were here to stay and making them even more desirable through raffles. Fortunately, this bubble burst. It’s a cold hard fact that fashion always changes, and if you fall far behind these changes, it’s difficult to get back in the game.

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I don’t know if there’s anything special about this, since it doesn’t say “:rotating_light: BREAKING NEWS :warning:”

Well, there was quite an interesting highlight in that tweet.

https://x.com/HedgeVision/status/1807879946175447105

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Nike and many others are included here. :slight_smile:

https://x.com/StockSavvyShay/status/1805202209547985078

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You don’t have to do a massive Google search to find some estimates on who is driving the sneaker market forward:

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As mentioned in the text, that doesn’t include shoes intended for specific sports. If you think about running, for example, I believe Nike is among the top there too, as the average jogger likely buys Nike or Adidas sneakers, even though Hoka is certainly popular among those more dedicated to the sport.

In addition to running, there are plenty of other sports where Nike is almost certainly in the lead compared to smaller, niche manufacturers.

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The P/E ratio is quite high considering that revenue is currently stagnant. The rationale for buying Nike could perhaps come from the relatively low operating margin (EBIT%), which is around 12%. If they could manage to increase it. Among footwear manufacturers, Deckers Outdoor (Hoka brand) and Crocs (still popular; even Mel Gibson was recently seen wearing them in Finland) generate double the operating margin. They are also growing better. Both have risen over 40% this year. Crocs’ P/E is still only about 11, meaning it’s cheap. Nike is the only one that pays a dividend. Could the Olympics provide an additional boost to sales?

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I have a comment about cutting retailers. Both Nike and Adidas (like many other brands) have been cutting out retailers and focusing more direct to consumer business. However, they want to cut out lower end retailers which are hurting brand equity (discount retailers etc). If I were Nike CEO and I noticed that Hoka is taking shelf space from Nike at Stcokmann, I would be very worried. This is not a reason to celebrate. On the contrary, this shows that Stockmann mgmt has noted that Stockmann customers prefer Hoka over Nike.

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If you aren’t familiar with Nike as a company, the consistently high-quality Acquired podcast covered it last summer. The problems hadn’t materialized yet at that point, of course, but this provides good context for framing the current situation:
https://www.acquired.fm/episodes/nike

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A board member added some more of the company’s shares. :slight_smile:

https://x.com/finchat_io/status/1808547730509476007

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It’s hard to see how investing in this now wouldn’t yield some quite nice profits by the fall. The Olympics start at the end of July, and Nike plans to spend a large sum on advertising; naturally, most athletes use Nike products. This will mean worldwide visibility and will surely boost sales, making Q1 significantly better than the latest Q4.

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Acquired has been on heavy rotation lately. I’ve spent my last couple of runs listening to the Nike episode, and it’s certainly one of the most entertaining ones. I still have a couple of hours of listening left. At least in the early days, Nike often looked for new ways of doing things and pushed the boundaries of acceptable behavior, and they didn’t avoid lawsuits. There has been some pretty insane growth in their history. Along the way, there have been many years where revenue has doubled. Financing operations has often played a very important role, as doubling also manifests as inventory growth.

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As a layman, it’s hard to see a connection between the Olympics and Nike’s results

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My spouse..
https://www.nasdaq.com/articles/sportswear-brands-go-to-the-olympics-in-2024%3A-paris-games-to-showcase-new-brands

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Running shoes are only a small part of Nike, but Nike is still number 1 in road shoes and has also demonstrated its capacity for innovation in “spring shoes” (carbon-plated shoes). On the road (where a large portion of jogging shoes are sold), world record shattering has been a theme for a few years now due to the development of shoe technology, and practically all WRs are set using either Nike or Adidas shoes. Nike dominated completely until last year, but now Adidas has also gained some market share; still, Nike is the clear number one brand on the road.

Also in track distances and jumping events, Nike was first with the technology, and the biggest stars—perhaps with the exception of someone like McLaughlin—use Nike.

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A very interesting stock; it hadn’t occurred to me before this thread that one could, of course, invest in Nike as well.

My own skate shoes and sneakers have been very heavily focused on Nike products for about the last 15 years, and my experiences have mostly been very good. I bought my third pair of skate shoes last spring, so the durability is at a pretty good level.

Disclaimer: I don’t skate or jog, so the shoes don’t wear out at nearly the same rate as they do for active athletes.

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Sijoituskästi’s Teemu and @Heikki_Keskivali compared Adidas and Nike. :slight_smile:

Topics:

0:00 Intro 02:30 Background on the companies 11:37 Current status of the companies 22:32 Valuations 28:42 Which one will Heikki and Teemu choose for their competition portfolios?

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