Nike - Just doing it!
Nike Inc. designs, develops, and markets athletic footwear, apparel, equipment, and accessory products for men, women, and children. The company owns over 1 000 retail stores worldwide, with operations in over 160 countries. The company generates ~43% of sales in North America (mostly the US), with more than 25% in Europe, the Middle East, and Africa. Greater China accounts for ~15% of revenue, and just under 15% of sales emanate from the rest of the Asia-Pacific region and Latin America.
The Nike brand (~95% of revenue) is the key operating segment for the group. This is further segmented into Footwear (~65%), the companys leading product offering led by the iconic Jordan brand and other collections, followed by Apparel (~27%), Nike Equipment (~5%), and Global Brand Divisions (<3%). Converse (~5%) is a wholly-owned subsidiary brand that designs, markets and distributes athletic lifestyle footwear, apparel and accessories.
Competition
Nike competes internationally with a significant number of sportwear, athleisure, and sports equipment companies with diversified lines of footwear, apparel, and equipment. Some notable players include adidas, Anta, ASICS, Li Ning, lululemon athletica, New Balance, Puma, Under Armour and V.F. Corporation, among others.
Nike is currently the largest seller of athletic footwear and apparel in the world. In 2022, Nike held a market share of 27.4% (2017: 26.4%) of the footwear industry, driven by athlete partnerships and a strong innovation pipeline. Nike's closest competitor, adidas, held 12.6% of the market (2017: 16.1%) having lost some of its share over the past five years, Sketchers USA (5.9% market share) and VF Corp were third and fourth on the list, respectively. Under Armour has also lost market share since 2016, while Puma (2.6% vs 2017: 3.4%) has gained from its push in local sports and basketball in North America.
Nike's dominance in the highly fragmented apparel industry is less pronounced, holding 9.3% of the playing field. The top three brands captured ~20% of the market. adidas (~7.0%) is also second in this market, trailing Nike by a little more than two percentage points.
Industry outlook
According to Euromonitor, the global sportswear market is expected to reach $522 billion in sales for 2026 vs. $364 billion last year, representing a compounded annual growth rate (CAGR) of over 9%. The market is highly competitive but continues to see steady growth amid healthy demand for retro, casual, and active wear. Global sales have been driven by the global resumption of sports and associated events, as well as by the Chinese market reopening. While retailers are seeing positive momentum in China, recent trends point to broad-based economic weakness that could be a hurdle for near-term growth.
Based on June 2023 Sensortower Athleisure app trends, which tracks new downloads and monthly active users on apps from iOS and Android stores, activity on athleisure shopping apps was mixed with Nike and adidas' apps also seeing growth, while downloads for SNKRS and Confirmed declined. Puma's e-commerce app has gained momentum in its first year, with active users more than quadrupling since its launch last June. lululemon's new loyalty programme and innovation helped spur new-user acquisition and retention.
Nike's growth strategy
Leadership aims to always, in a speedy fashion, respond to trends and shifts in consumer preferences by adjusting the mix of new and existing product offerings, styles, and categories, as well as through effective sourcing and distribution, and influencing sports and fitness preferences through extensive marketing. In FY21 through FY23, the company made multiple acquisitions focused on gaining new capabilities to fuel its Consumer Direct Acceleration strategy of serving consumers personally at a global scale. Digital acceleration, women's, Jordan, and international markets are also growth drivers, with upside tied to China's recovery pace.
Nike's bet on sports sponsorships and collaboration with top athletes and coaches have aided, and should continue to support, market-share gains. The company identifies with prominent and influential athletes, influencers, public figures, coaches, teams, colleges, and sports leagues who endorse its brands and use its products.
Nike's strategy is to achieve long-term revenue growth by creating innovative, “must-have” products, building deep personal consumer connections with its brands, and delivering compelling consumer experiences through digital platforms and at retail. The group continues to invest in new business systems and platforms, data and analytics, demand sensing, insight gathering, and other areas to create an end-to-end technology foundation to further accelerate its digital transformation. This unified approach will likely accelerate growth by unlocking more efficiency for the business, while driving speed and responsiveness.
Financial Performance
4Q23 Results
The group reported consensus-topping revenue growth for 4Q23 at the end of June driven by robust demand for sportswear, apparel, and equipment across all key geographies, particularly in China— coinciding with a post-Covid economic recovery in the region. Sales for Converse were marginally lower, though the overall impact was minimal due to its smaller contribution relative to the other major brands.
Digital
Balance sheet
Outlook
Investment Case Summary
Risks
ESG considerations
In FY20, the group derived "NIKE's purpose 2025 Targets" based on NIKE's three purpose pillars - people, planet, and play. The pillars are aimed at 1) building a more diverse, inclusive team and a culture of belonging that reflects the diversity of the athletes and communities the group works for, 2) investing in initiatives and programmes that help all kids access play and sport and 3) develop more sustainable innovations that reduce the impact on the planet.
In FY22, the company had achieved a 64% reduction of greenhouse gas (GHG) emissions in owned or operated facilities against a 2025 target of a 70% reduction through 93% renewable electricity and fleet electrification (FY20: 48%; FY25 target: 100%). This was a benefit of years of stewarding renewable energy through onsite wind and solar power purchase agreements, and renewable energy credits. Additionally, 97% of waste was diverted from landfill, with 72% of waste being recycled.
Consensus Outlook and Valuation
Nike is trading on 26.1 times forward PE, lower than its long-term average (31.9 times). The stock trades at a premium relative to the sector, which is justified by its strong growth outlook, from a low base (FY22).
