Kelsey Corallo
Period 3
Economics
September 10, 2010
Investment Research Report
Company Name: NIKE, Inc.
Ticker Symbol: NKE
Current Price: $70.94
52-Week High: $78.55
52-Week Low: $53.22
EPS: $3.87
Price Earnings Ratio: 18.34
Stock Volume: 2.66 Million
Trends: Past month, past six months, past year, and past three years:
Overview of NIKE:
NIKE, Inc. is a company focused on the merchandising of footwear, apparel
and equipment for sporting goods. The company markets a variety of products,
and manufacturing takes place in the United States and other international
countries. Nike’s goal is to invent and develop new products that are safe and
convenient. They focus their concepts on both athletic and everyday wear. Nike
products are built to enhance comfort and performance, as well as prevent injury.
Nike has a whole team of members working to perfect their products, including
engineers, physiologists, chemists, coaches and athletes. As a team, they work
together to evaluate and screen each product to perfection. Nike considers the
endless potential of athletes and work to create products that can help individuals
reach these goals.
Market:
Athletes are not the only target of NIKE products. NIKE is not only the
maker of sportswear and workout gear, but many other types of clothing as well.
In truth, NIKE products are for everyone, based on their slogan: “If you have a
body, you are an athlete.” Most consumers are purchasing NIKE products without
even knowing it. NIKE owns Cole Haan, which is a formal footwear and accessory
brand, Converse, a casual footwear brand, and Hurley, an informal clothing brand.
Hence, NIKE products target consumers of all levels of fitness and age.
Due to NIKE’s variety of market, it is a household name and leading fitness
company. NIKE creates the design, development, and marketing of all of their
footwear, apparel, equipment, and accessory products. NIKE helps evolve
products in over 170 countries world wide.
Products Sold:
In just 2010, NIKE has created both new men’s and women’s apparel lines.
They have created NIKE 6.0 that targets men and women between the ages of 14
and 29. This demographic consists of approximately 75 million people who all
spend a collective $467 billion per year. This new line consists of all types of
clothing (shirts, shorts, shoes, etc.). They sell shoes for walking, running,
skateboarding, cycling, outdoor and aquatic activities, golf, tennis, lacrosse,
wrestling, cheerleading, football, soccer, baseball, volleyball, and other
recreational activities. They also sell performance equipment such as balls, bags,
bats, gloves, pads, socks, eye wear, and electronic equipment. They sell their
products in many retail stores and outlets.
They are located in over 180
countries worldwide and sell to approximately 25,000 retail accounts.
NIKE owns the brand names NIKE, Converse, Umbro, Cole Haan, Hurley,
Chuck Taylor, One Star, Bragano, All Star, and Jack Purcell. Each of these brand
names sells different products and targets a very wide variety of consumers. For
example, NIKE sells athletic shoes while Cole Haan and Bragano sell formal shoes,
and Converse, All Star, and One Star sell casual shoes. These all target many
different demographics. Hurley covers most of the youth and teen population
and Umbro focuses primarily on soccer equipment and apparel. This, in turn,
helps NIKE widen its own target market enormously.
Competition:
Because NIKE was created specifically for shoes, many of its competitors
are fellow shoe companies. NIKE's revenue consists mainly of Footwear, Apparel,
and Equipment (54% Footwear, 27% Apparel, 6% Equipment, and 13% other).
NIKE controls more than 20% of the shoe market in the United States. From the
shoe side of the company, NIKE's competitors consist of Adidas, Under Armour,
and Reebok. In 2009, NIKE generated $19.2 billion whereas Adidas, Reebok,
Under Armour and Fila haven’t generated nearly as much. Even though NIKE
controls most of the market share, Under Armour is in a close second. They have,
over the past 5 years, begun to create many products that resemble NIKE. NIKE
provides the cheaper product, but Under Armour's products that are better
quality. Under Armour has consistently had a greater variety of quality goods.
But, many consumers have shown that they prefer NIKE over all because they
have grown up wearing NIKE and feel more comfortable buying the cheaper,
more personable product. NIKE also has an advantage because it has more
experience and has gained a lot more respect from consumers. NIKE assures
consumers that they can buy from them. Just as their mission statement says, "If
you have a body, you are an athlete."
Management:
NIKE's President and Chief Executive Officer is Mark Parker. Donald W.
Blair is the Vice President and Chief Financial Officer. Phil Knight is a co-founder
of NIKE and the Chairman of the Board of Directors. The President of the NIKE
brand is Charlie Denson.
History:
NIKE started out as Blue Ribbon Sports by two men, Bill Bowerman and Phil
Knight. Bowerman, at the time, was a track coach at the University of Oregon.
He was looking to invest in a lighter track shoe that would ultimately help his
runners run faster. Knight was one of Bowerman's athletes and remained close
with Bowerman after college. Knight went on to grad school at Stanford with a
dream to create a light running shoe for track athletes. His dream was ignored by
most at first, but eventually a Japanese based shoe making company made a deal
with Knight. After this, Bowerman offered to become business partners with
Knight and the company took off. They started with only $500 and 300 pairs of
shoes. Their first customers were high school track athletes. Knight and
Bowerman sold them shoes out of the back of Knight's van. As they made more
money, they began to hire more employees and expand the business. They hired
Jeff Johnson, who advertised the company and created the name "NIKE" and the
famous 'swoosh' symbol. By the early 1980's, NIKE became a publicly traded
company and was named the leader of the shoe industry. The slogan "Just Do It"
was created in the late 80's as NIKE began to sponsor many professional athletes.
They expanded their products from just shoes to cleats, clothing, and apparel. As
of now, NIKE is considered the largest sports and fitness company in the world.
Competitive Advantage:
NIKE is an extremely competitive corporation and takes its competition
seriously. CEO Phil Knight is quoted saying “Business is war without bullets.”
NIKE possesses a strong advantage by not having factories, which means that
money is not spent on buildings of manufacturers. NIKE’s goal of prominent
innovation promotes their superior research and development. They produce
quality products at lowest possibly prices by manufacturing all over the world;
NIKE moves production once it gets too costly in one area. NIKE is the number
one sports brand in the world, symbolized by its signature “Swoosh.”
Sales for last three years (in millions):
2007- $16,325.9
2008- $18,627.0
2009- $19,171.1
Expenses for last three years (in millions):
2007- $14,834.5
2008- $16,743.6
2009- $17,683.5
Net income for last three years (in millions):
2007- $1,491.4
2008- $1,883.4
2009- $1,487.6
Number of stores/units added in last three years:
2007- 68 new NIKE stores
2008- 70 new NIKE stores
2009- 118 new NIKE stores
State of the Stock Market:
The stock market is rearing a depression much like that in the 1930’s,
though it is happening over a longer period of time, making it possible to bounce
back more easily. The U.S. is currently marked 52nd out of 82 countries regarding
stock market performance in 2010. The stock market took a major dip at the
beginning of 2009, but has gradually come back to a two-year high in April of
2010. The month of September does not look too promising so far, but the trends
predict that the market will soon rise.
NIKE stock generally follows the trends of the stock market, as seen in the
graph below. As the market rises and falls, so does NIKE, but is clear how NIKE
dominates all three of S&P500, NASDAQ and DOW. Even as the three stock
exchanges hit bottom, NIKE continues to succeed in the market. It can be
assumed that as the market improves over time, NIKE stock will rise considerably
above many companies and continue to be superior.
State of the Economy:
Our economy is currently experiencing an average 1.95% inflation rate,
which is bad news compared to 2009's deflation rate of -0.34%. So far this year
up until July, inflation has been at a steady decrease, but past trends show that
rates can increase or decrease at any given month. As for unemployment, the
U.S. has had the highest unemployment rates over the past two years dated back
to 1990. In June of 2010, the rate was 9.6%, which is a decrease from a couple
months ago which topped 10%. Annual average salary increase in 2010 is 2.5%,
and the average wage in the U.S. for 2010 so far is $33,070.30, which is about
$10,000 below that of 2008. An average employed American age 25-54 works an
average of 8.8 hours a day. As of September 11, 2010, the total U.S. national debt
is an unbelievable $13,452,745,559,696.61, increasing an average of 4.12 billion
dollars a day since September 28, 2007. In 2009, the total deficit for the U.S. was
$1.42 trillion, and it is predicted to decline to $1.17 trillion by the end of 2010.
The state of the economy is obviously bad, but that doesn’t mean that NIKE
stock suffers. Experts say that the economy will improve, and this inspires people
to invest in stock, including that of NIKE. When the economy is good, the price of
the stock is higher; since people are hopeful about the future, though, stock
prices have been somewhat rising.
News Articles About NIKE:
1. “The Game and the Shoe” by Mary Billard, August 11, 2010
This article was promoting the new NIKE museum and store in
Harlem, created to celebrate basketball and sneaker heritage. This event
was part of the World Basketball Festival hosted by NIKE, Jordan and
Converse. It has been open since August 10 and will close September
15. It has been a gallery dedicated to basketball.
The events of the article have appeared to not have affected NIKE
stock for the better; the price of the stock has decline from the month of
August into September.
2. “Pressured, NIKE to Help Workers in Honduras” by Steven Greenhouse,
July 26, 2010
NIKE announced that they would help 1,800 Honduras workers laid
off due to subcontractors closing factories. The company did this by
paying $1.54 million to the workers. NIKE was pressed by several
Universities and a group called United Students Against Sweatshops to
pay off two million dollars owed to the workers by the subcontractors.
NIKE agreed to cover training and health care for the workers as well.
NIKE is the first apparel brand to take responsibility for financial
obligations to workers and their factories. Under Honduran law,
though, NIKE had still owed more than $2 million to the workers. This
caused protests among many NIKE retailers and Niketown stores; their
slogan was “Just Pay It.” Several universities have warned NIKE that if
they don’t pay the workers, more protests are to come in the future.
The event described in this article has had a major effect on NIKE
stock. As the protests and workers’ situations were exploited, the price
of NIKE stock dropped. Hopefully NIKE stock will raise once again as the
dispute is resolved.
3. “Design and the World Cup: Best and Worst” by Alice Rawsthorn, June
27, 2010
As the World Cup took place, NIKE, Adidas and Puma began to
develop products to promote the event. The article evaluated each
company’s design for soccer cleats, shirts, logos and balls. NIKE won
best soccer cleat, (or boot), because of its innovative color strategy, and
best shirt design as well. The shirts were stylish and made from recycled
polyester, gaining eco-friendly consumers.
The new NIKE products were a hit, as stock price was on a rise from
mid-June through early July, around the time of the World Cup. Despite
this, prices dropped shortly after the event.
Market:
NIKE targets and attracts consumers of all ages, shapes and sizes. This is
because the company develops products that target all sorts of people, whether
its intense sports gear or just casual workout wear. NIKE owns a wide variety of
brands, making their market available for anybody and everybody. It owns
Hurley, a brand directed towards youth and teens as skateboard and surf wear.
Converse is a universal brand in which anyone can buy a pair of casual shoes
from; their products are branched into an exclusive brand to Target, OneStar.
NIKE also owns Umbro, a brand for soccer players. Cole Haan is another brand of
NIKE’s that sells dress shoes for adults.
NIKE’s main competitors in its market include Adidas, Under Armour, Steve
Madden and Fila. Some other competitors are Sketchers, Timberland, Crocs, KSwiss, Puma and Kenneth Cole, though NIKE has consistently remained dominant
to all of these companies.
The market is definitely increasing, as the demand for sports apparel and
shoes has not changed as the economy worsens. NIKE brand continues to excel
over its competitors because of being a household name and being considered a
superior brand. No matter how the economy does, people still want their NIKE
products.
Recommendations:
1. Recommendation from: “The Wild Investor” (http://thewildinvestor.com/4stocks-to-buy-in-2010/):
Date: January 1, 2010. Suggests 4 different stocks to invest in. The first is Bank of
America (BAC), the second Vale S.A (VALE), the third Caterpillar (CAT), and the
fourth Schlumberger Limited (SLB). These recommendations are represented in
the following charts, based off of quotas from 2009:
2. Recommendation from: Juliet Straker
Company: MarketingWorx
Date: September 12, 2010
Source: Interview
Juliet recommends investing in the company Tesla, which produces electric cars.
This is a very successful independent company which is being looked into by
bigger companies such as Ford and General Motors; if it were to be bought by
either of these companies, the stock price would skyrocket. Straker suggests
investing in gold as well. This is because the price of gold is worth more than the
dollar, which is currently an increasing trend. Finally, she recommends investing
into BP. Its stock is doing poorly right now due to its recent oil spill, though prices
will rise soon enough because the spill will soon be overlooked. The company is so
big that its oil production is only one part of its revenues.
3. Recommendation from: David Cohen
Company: Emergency Professional Services
Date: September 10, 2010
Source: Interview
David Cohen recommends three companies to invest in, starting with New
Zealand Telecom, which is a company that gives a 9% dividend. The second he
suggests is BP, as Straker suggested. This is because the price of the stock is
currently so low that once prices rise again, a major profit can be made. The third
company that Cohen recommends is Syngenta, an agricultural business. He
makes this suggestion based off of the prediction that the food industry is going
to increase with an increasing population. Investing in Syngenta is investing into
innovative food processing.
Summary:
If I had the choice of investing into NIKE stock, I definitely would. NIKE
stock is currently at a high point over a three year index, and will continue to rise
as the economy improves. This global corporation is an international success,
having added 7 units around the world so far this year, as well as eight units in the
United States. NIKE is a superior company due to immense popularity among all
age groups. This means that no matter how badly the economy is doing, people
still buy NIKE products for the brand name. NIKE products are known for their
durability and all around comfort. NIKE has multiple leading companies under its
wing, each one popular and successful.
Though NIKE is currently in a rut because of the Honduran workers’ protest,
the conflict will soon resolve itself and the company will continue to grow and
innovate. Even though NIKE stock is currently declining, it still dominates Dow,
Nasdaq and S&P500, which means that its stock will always be a success and
overcome its struggles. NIKE stock is consistent; there are never any huge drops.
Sure, there are some small declines now and then, but it always improves.
Because of NIKE’s everlasting popularity and history of success, investing
into NIKE stock is a promising risk to take. It serves as a great long term and short
term investment, since the stock usually stays true to the trends of the economy.
Based off of NIKE’s international popularity and success, as well as ability to
exceed competitors, I would recommend NIKE stock 100%.
Works Cited
Nikebiz : NIKE, Inc. Official Site, the World’s Largest, Leading Athletic Brand. Web.
11 Sept. 2010. <http://www.nikebiz.com/>.
"NKE." Yahoo! Finance. Web. 06 September 2010.
<http://finance.yahoo.com/q?s=nke>.
"Nike Inc. (NKE)." BusinessWeek. Web. 04 Sept. 2010.
<http://investing.businessweek.com/research/stocks/snapshot/snapshot.a
sp?ric=NKE>.
Nike.com. Web. 08 Sept. 2010. <http://www.nike.com/nikeos/p/nike/en_US/>.