Investment Research on
Nike Inc.
Caitlin Fell
11/22/2010
Investment Research on Nike Inc.
Fell, Fall 2010
Table of Contents
Introduction and History ............................................................................................................................... 1
Product Line .................................................................................................................................................. 2
Subsidiary Brands .......................................................................................................................................... 3
Key Executives............................................................................................................................................... 4
SWOT Analysis............................................................................................................................................... 5
Strengths- Nike Inc .................................................................................................................................... 6
Brand Identity ....................................................................................................................................... 6
Influential athletes representing the brand.......................................................................................... 6
Worldwide distribution ......................................................................................................................... 7
Associated with subsidiaries ................................................................................................................. 7
Weakness- Nike Inc ................................................................................................................................... 7
Operating in poor conditions ................................................................................................................ 7
Dependent on footwear ....................................................................................................................... 8
Opportunities- Nike Inc ............................................................................................................................. 8
Expanding product line/ Product development.................................................................................... 8
Increase in revenue ............................................................................................................................... 8
Threats- Nike Inc ........................................................................................................................................... 8
International Trading ............................................................................................................................ 8
Counterfeit goods ................................................................................................................................. 9
US Economy recession .......................................................................................................................... 9
Nike Inc Data ................................................................................................................................................. 9
Balance Sheet............................................................................................................................................ 9
Income Statement .................................................................................................................................. 12
Nike stock prices ..................................................................................................................................... 15
Future prediction ........................................................................................................................................ 16
Works Cited ................................................................................................................................................. 17
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Introduction and History
The Company, Nike, was founded in 1964 as Blue Ribbon Sports by Bill Bowerman and Phillip
Knight. Phillip Knight, a “Stanford University business graduate and former member of the track
team” (Nike, Inc, 2006) scheduled an interview with a Japanese running shoe manufacturer,
Tiger, to discuss the potential of importing Japanese shoes. Knight informed the company that
these shoes would be sold in the United States as a competitor against Germany. The Tiger
executives agreed to Knight’s proposal, and, shortly after, the shoes were imported into the
country. Bill Bowerman, Phillip Knight’s former track coach, became a partner shortly after the
agreement when he gave $500 to equal Knight’s first investment. As both men had an innovation
to design high-quality running shoes, the company became a success and quickly expanded. In
the company’s first year, “Blue Ribbon Sports sold over 1,300 pairs of Japanese running shoes to
gross $8,000” (Nike, Inc, 2006). The company’s sales continued to rapidly increase, and in 1978
it officially changed its name to Nike. Nike is now known as the world’s largest marketer of
athletic footwear.
Nike was named after the Greek Goddess of Victory. The swoosh logo was created by Caroline
Davidson for $35 dollars to represent the wing of the goddess (Nike Consumer Affairs packet,
1996). According to Nike Consumer Affairs packet, “the Nike swoosh embodies the spirit of the
winged goddess who inspired the most courageous and chivalrous warriors at the dawn of
civilization.” The Nike symbol was initially affixed to a soccer shoe which was the first Nike
product to be sold. In Nike’s first year of distribution, “the company’s new product grossed to
$1.96 million (Nike, Inc, 2006).” The shoe was a success, and Nike began expanding to Canada
and its first foreign market, Australia, in 1974.
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From then on, Nike started opening retail stores around the world and expanded its product line.
As of October 2010, Nike has over 34 000 employees (Snap Shot, Nike Inc, 2010). “Nike
operates Niketown shoe and sportswear stores, Nike factories and outlets, Nike women shops,
and also sells products online” (Snap Shot, Nike Inc, 2010). Overall, there are about “690 Nikeowned retail stores and over 23 000 retail accounts that sell the product in nearly 200 countries”
according to Investment Research conducted by Nike Inc, Snap Shot. The company expanded its
product line from shoes to all types of apparel and sporting equipment.
Product Line
St. John's University Student Managed Investment research stated, “Nike creates designs for
men, women, and children” (John's University Student Managed, Investment Research, 2004).
Since the first products were track running shoes, Nike decided to develop shoes and active sport
apparel for a range of other sports including basketball, cross-training, outdoor activities, tennis,
combat sports, athletics, skateboarding golf, soccer, football, bicycling, volleyball, wrestling,
cheerleading, hiking, and other recreational uses. Nike has athletic bags, accessories, sport balls,
eyewear, timepieces, skates, bats, gloves and other sporting performance equipment. The
company also has a license to sell swimwear, women’s sports bras, cycling apparel, maternity
exercise wear, children’s clothing, school supplies and electronic media devices. Nike has also
joined up with Apple Inc to produce Nike+ products which monitors a runner’s performance via
a radio device in the shoe which can be seen on an IPod player.
Nike’s purpose for each product line is to have the same designs to complement the athletic
footwear for that sport. If Nike releases a new Air Jordan shoes, it will release accessories and
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apparel to compliment the shoe. As stated by St. John's University Student Managed, Investment
Research, Nike apparel and accessories are designed to complement its athletic footwear
products, feature the same trademarks and are sold through the same marketing and distribution
channels (John's University Student Managed, Investment Research, 2004). These products help
promote the premium brand and lure customers into buying more than just the shoe.
In 1987, the first Nike shoe line was released called Nike Air Max. This shoe catered for most
sports. Soon later, Nike decided to specialize in specific sports and design shoes for athletes to
help them dominate in their chosen career. Air Jordan became one of Nike’s famous basketball
shoes worn by Michael Jordan. Critics believed Nike’s influence ran too deep but Nike’s
Marketing executives saw it as part of a campaign to create an image of Nike not just as a
product line but as a lifestyle, a “Nike attitude” (Nike, Inc, 2006). After having signed Michael
Jordan as a spokesperson for Nike, Nike’s influence in the world of sports grew. Other shoes like
Air Zoom Yorker and Nike NYX were created for skateboarding, tennis shoes were designed,
and in 1995 Nike supplied shoes for Golf players (Nike Biz, 2010). At the age of 20, Nike signed
the next superstar spokesperson, Tiger Woods, who agreed to a $40 million endorsement
contract. Many other athletes have been signed as Nike representatives like famous tennis
players, football players, hockey players, and Olympic representatives. Nike uses the public and
famous spokespeople to promote the brand.
Subsidiary Brands
Nike also sells other products under other brand names and trademarks. Nike is associated with
its subsidiaries Cole Haan, Hurley International, and Converse. These companies’s manufacture
and distribute sporting apparel, sporting equipment, or youth lifestyle apparel. The luxury brand
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name, Cole Haan joined Nike in 1988 to sell, “men’s and women’s footwear, accessories, and
outwear focusing on craftsmanship, design, innovation, and character” (Nike Biz, 2010). In
1998, Nike enters the Hockey arena with Bauer to manufacture and distribute ice skates, ice
blades, in-line roller skates, protective gear, hockey sticks, and hockey jerseys (Nike Biz, 2010).
In 2002, Nike acquired Hurley International LLC to design and distribute a line of action sports
apparel for surfing, skateboarding, and snowboarding. In 2003, Nike purchased Converse for
$303 million but “left it as a separate operating company for the purpose of not losing the
brand’s popular name” (John's University Student Managed, Investment Research, 2004). Each
of these brand names helps expand Nike’s product line and sell an assortment of merchandise.
Key Executives
In the Nike Company, teams are formed to help the business excel and continue its success. The
team members often report into two areas like geography or global functions. The team that leads
Nike’s business and growth strategies includes Phillip H. Knight, Chairman of the Board of
Directors, Mark Parker, President & Chief Executive Officer, Nike, Inc, and Charlie Denson,
President, Nike Brand. Mark Parker joined Nike back in 1979 (Nike Biz, 2010). He was one of
the first footwear designers and after running competitively at Penn State University. Nike
believes “he is responsible for the growth of Nike” (Nike Biz, 2010). After running
competitively at Penn State University, Parker joined Nike as one of our first footwear designers
back in 1979 (Nike Biz, 2010). Charlie Denson started at Nike in 1979 as an assistant manager.
He learned the business from the ground up and pioneered Nike’s expansion into China, Brazil,
and India (Nike Biz, 2010). All members at Nike are an asset to the company and help drive
Nike’s global growth.
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In an article released in March 2010, Nike Inc was ranked the second most admired most
companies in the United States for 2009 (Most Admired Companies in the United States, 2009) .
It has also been stated by Allan Brettman, from the Oregonian that Nike’s revenue will grow by
42% over the next five years, primarily “from developed and developing markets around the
world” (Brettman, Where to, from $19 billion?, 2010), its president predicted on Monday. After
another article release on October 13th, 2010 by Allan Brettman, Nike has “intercepted a key
endorsement deal with rival Reebok on Tuesday with the announcement that its Swoosh will
begin appearing on the National Football League uniforms with the 2012 season” (Brettman,
Nike, 2010). Nike’s influence on sports is expanding and the media is following Nike’s footsteps
(Brettman, Where to, from $19 billion?, 2010).
SWOT Analysis
Nike Inc is the world’s leading supplier of apparel and athletic shoes. It also designs and
develops equipment and accessory products. Nike operates worldwide in over 200 countries. Its
name and Swoosh logo design make it a leading brand name. Associating famous athletes to
their products creates a strong attachment from consumers. Being a worldwide distribution
company and associating Nike with subsidiary companies are Nikes strengths. Furthermore, the
company’s continual product development and increase in revenue ensures a strong future for
Nike. However, the instability in international trading, the rise in counterfeit goods and the US
Economy recession poses threats to the company and may affect its growth.
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Table 1 shows the strengths, weaknesses, opportunities, and threats in Nike Inc.
Strengths
Brand Identity
Influential athletes representing the brand
Worldwide Distribution
Associated with subsidiaries
Opportunities
Expanding product line/ Product
development
Increase in revenue
Table 1: SWOT Analysis Table
Weaknesses
Operating in poor conditions
Dependent on footwear
Threats
International Trading
Counterfeit goods
US Economy recession
Strengths- Nike Inc
Brand Identity
Nike is one of the leading brand names in the world. Nike is successfully recognized by its
trademark, the ‘Swoosh Logo” design. The Swoosh design is one of Nike’s valuable assets as
well as the name itself. These two trademarks combined make it illegal for other companies to
violate upon the brand. Nike has the ability to access different markets because of the established
image they have produced. Nike is recognized over 100 countries.
Influential athletes representing the brand
Nike associates themselves with leading professional athletes. These celebrity endorsements
create emotional attachment to the product and increases higher sales. Nike’s first spokesperson,
Michael Jordan, helped promote the brand and created an influence. Since then, Nike has many
famous representatives that have helped generate millions of dollars in revenue. With each
spokesperson, Nike is able to introduce new products. These products are more easily accepted
by consumers because of the strong brand image and the famous athlete wearing the product.
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Worldwide distribution
Nike is known as the world’s largest marketer of athletic footwear. It has a worldwide
distribution to over 200 countries. There are over 23 000 retails stores that sell Nike products and
about 690 Nike-owned retail stores around the globe. Nike produces footwear in low cost
countries like China, Vietnam, Indonesia and Thailand. It has agreements in Argentina, Brazil,
India, Italy and South Africa. It also has independent contract manufacturers located in Malaysia,
Turkey, Sir Lanka, Honduras, Mexico, Taiwan, Israel, Cambodia and Bangladesh. It has 11
distribution centers in Europe, Asia, Australia, African, and Canada. Nike is world leading brand
that will continue to expand.
Associated with subsidiaries
Nike is associated with its subsidiaries, Cole Hann, Hurley International, and Converse. These
businesses play a significant role in Nike’s Industry. They contribute to millions of dollars of
revenue each year. The partnerships combined make Nike become more prestigious and help’s
expand Nike’s product line by selling additional merchandise.
Weakness- Nike Inc
Operating in poor conditions
It has been reported that Nike has been operating in countries such as China, Vietnam, Mexico
and Indonesia. The operating factories in these countries are in poor conditions and it has been
alleged that Nike has been violating the minimal wage. Nike has also been accused of using child
labor. These allegations cause doubt in the company’s social responsibility and may affect
Nike’s reputation.
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Dependent on footwear
Nike’s relies heavily on the revenue from the footwear industry. This could pose a threat if
Nike’s key competitors develop a more advanced shoe and become highly established. Nike’s
dependability on its footwear products distribution could become challenging in the future.
Opportunities- Nike Inc
Expanding product line/ Product development
Nike consistently focuses on product development and how it can build brand equity. The
company is always striving to develop an enhanced product that will benefit its consumers.
Having new product lines released each season or for each professional athlete, drives top-line
growth.
Increase in revenue
As Nike continues to develop new product lines, sales increase. With the new and popular online
shopping preference, the company is bound to benefit in sales. Giving countries an international
shipping option will also enhance its total in revenue. If Nike continues to strive for the best
technological development in shoes, apparel and equipment, consumers will help in sales
growth.
Threats- Nike Inc
International Trading
Nike is exposed to International trading. Buying and selling in different currencies does not
maintain stable costs over long periods of time. As the currencies consistently changes, Nike
could be selling products at a loss.
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Counterfeit goods
The company’s business may be affected by the increase in counterfeit goods. This increase can
lower the sales for the company. Counterfeit goods can also damage the company’s name and it
may lose its brand equity. If customers receive counterfeit products and are dissatisfied, then the
company’s image may be damaged.
US Economy recession
The company’s sales might be affected by the economic downturn. It may negatively impact the
consumer’s demand which will reduce the company’s sales. The downturn has caused loss of
jobs which results in limited consumer spending. Without the consumers purchasing products,
the company’s profitability will be negatively affected.
Nike Inc Data
Balance Sheet
Table 2 shows the Balance sheet for Nike Inc from 2009 to 2010. The Balance sheet represents
the financial position of Nike at the end of their financial year on 31st May 2010. It is in essence
a ‘photo’ of the company’s financial standing. The balance sheet shows the change in the
company’s financial make up in regards to its assets, and the amount of debt and equity it uses to
finance the running of the company. Looking at the figures we see that the company has
increased its assets by approx $100M which can be seen as a strength since the company is
expanding even during the prolonged poor economic conditions.
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Table 2: Nike's Balance Sheet
Fell, Fall 2010
Nike Inc Information
Fell, Fall 2010
NIKE, Inc.
BALANCE SHEET for 31 May 2010
BALANCE SHEET
for 31 May 2010
5/31/2010
5/31/2009
(In millions)
ASSETS
Current assets:
Cash and
equivalents
Short-term
investments
Accounts
receivable, net
Inventories
Deferred income
taxes
Prepaid expenses
and other current
assets
Total current
assets
Property, plant and
equipment
Less accumulated
depreciation
Property, plant and
equipment, net
Identifiable intangible
assets, net
Goodwill
Deferred income
taxes and other
assets
Total assets
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Current liabilities:
Current portion of
long-term debt
Notes payable
Accounts payable
Accrued liabilities
Income taxes
payable
Total current
liabilities
Long-term debt
Deferred income
taxes and other
liabilities
Redeemable
preferred stock
Shareholders' equity
Total liabilities and
shareholders'
equity
$3,079.10
$2,291.10
2,066.80
1,164.00
2,649.80
2,883.90
2,040.80
248.8
2,357.00
272.4
873.9
765.6
10,959.20
9,734.00
4,389.80
4,255.70
2,457.90
2,298.00
1,931.90
1,957.70
467
467.4
187.6
873.6
193.5
897
$14,419.30
$13,249.60
$7.40
$32.00
138.6
1,254.50
1,904.40
342.9
1,031.90
1,783.90
59.3
86.3
3,364.20
3,277.00
445.8
855.3
437.2
842
0.3
0.3
9,753.70
8,693.10
$14,419.30
$13,249.60
Nike Inc Information
Fell, Fall 2010
Looking at table 2, Nike’s Balance Sheet has improved. We can see this from a couple of
different items. Firstly, both Nikes Current, and Total Assets have increased. Given the
economic downturn that has happened over the past couple of years this is a very positive thing.
Also, the Accounts Receivable has decreased which is a positive thing because it shows that
Nike is collecting their ‘debts’ more this year than the previous year. Again, given the poor
economic conditions this is a good thing.
Income Statement
Table 3 shows the Income Statement for Nike. The most positive thing looking at this data is
that the Net Income has increased more than $400 million since last year. Also, we can see that
there has been no addition impairment to the Assets that Nike has. This is a good thing as it
shows that the Brand Image of Nike etc is holding its value in the market which is promising for
continued future sales.
The income statement shows the revenues and expenses of Nike for the year starting 1 June 2009
and ending 31 May 2010. Nike made a Net Income of over $1B for the year which is definitely
a good thing (given the poor economic conditions). We can look at the breakdown of expenses
that the company incurs on a yearly basis and compare these numbers on a percentage basis to
previous years etc. The Income Statement showed some good and bad things. The Gross margin
went up 2% which is good, however the selling and administration expense went up 1% which
isn’t too much of a big deal since it is only a small change and overall comparing the gross
margin increase and selling and administration expenses decrease there still a net increase in
these numbers.
Nike Inc Information
Fell, Fall 2010
Nike has revenues from: Footwear, Apparel, and Equipment from the ‘main’ Nike brand. They
also have revenues from subsidiary companies Cole Hann, Converse, Nike Golf, Umbro and
Hurley. In addition to these main revenue streams Nike will also have income from investments
in the stock market (other companies, commodities, futures, ForEx) as well as from the sale of
capital assets.
Expenses for Nike would arise from various places. The most obvious one is Cost of Goods
Sold (CGS). This is the expense that is related to the manufacturing of products that they would
later sell. For example, it costs Nike $25 to make a pair of running shoes, which they then sell
on at $100, the $25 is the CGS expense. Nike would also have expenses that come from the
general running of the company (advertising/marketing, recruiting, fees paid to professional
athletes, etc) and these are listed under the Selling and Admin section of the Income Statement.
In addition to these main expenses (which can be broken down further, however the figures are
not released to the public in the Financial Statements) there are depreciation and amortization
expenses which are a ‘non-cash’ expense. For example your car is not worth as much as it did
the day you bought it. Companies have to report this ‘decrease’ in value of machinery etc that
they have so that investors have an accurate picture of ‘how much the company is worth’. In
addition to this the company will pay Income Taxes to the government which is also an expense.
In some years Nike has had restructuring costs and other ‘extra-ordinary items’. These are
expenses which are accounted for in a different ways so that they don’t ‘affect’ the financial
statements in the usual way an expense would because they are not a normal part of Nikes
business.
Nike Inc Information
Fell, Fall 2010
Table 3: Nike's Income Statement
NIKE, Inc.
INCOME STATEMENT for Year Ended 31 May 2010
INCOME
STATEMENT for
Year Ended 31
May 2010
Revenues
5/31/2010
5/31/2009
19,014.00
19,176.10
10,213.60
8,800.40
46.28%
10,571.70
8,604.40
44.87%
6,326.40
6,149.60
33.27%
32.07%
0
195
0
199.3
0
202
-49.2
-88.5
6.3
-9.5
Income before
income taxes
2,516.90
1,956.50
Income taxes
Income Tax %
610.2
24.24%
469.8
24.01%
Net income
1,906.70
1,486.70
Cost of sales
Gross margin
Gross Margin %
Selling and
administrative
expense
S & A%
Restructuring
Charges
Goodwill
Impairment
Intangible and
other asset
impairment
Other (income),
net
Interest expense
(income), net
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Nike Inc Information
Fell, Fall 2010
Looking at table 3, the most positive thing is that the Net Income has increased more than $400
million since last year. Also, we can see that there has been no addition impairment to the Assets
that Nike has. This is a good thing as it shows that the Brand Image of Nike etc is holding its
value in the market which is promising for continued future sales.
Nike stock prices
Nike stock prices for the last five years has increased and decreased. In 2005, the stock price
increased until the economic downturn in 2008. It has rebounded to its current point of approx
$85 a share. This shows the strength of Nike as a company as in general the world economy is
still struggling. Looking at these share prices and various other financial data, Nike would seem
to be a solid investment.
Table 4: Nike's Yearly Stock Prices
Nike Inc.
Stock Prices
May 31st 2005- Nov 22nd 2010
Date
Price
31-May-05
$
41.88
31-May-06
$
42.55
31-May-07
$
56.69
31-May-08
$
68.37
31-May-09
$
57.05
31-May-10
$
72.38
22-Nov-10
$
85.81
Looking at table 4, we can see how Nikes stock price has increased in general over the past five
years. The only exception in the increase was in 2009 when the price decreased nearly ten
dollars. However, this can be put down to the global economic downturn. The positive thing to
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take out of this devaluation is that the price has bounced back since then to its highest price in
the past five years.
Future prediction
Conducting research on Nike Inc has shown that it is a solid investment from the strengths. This
report has analyzed the pros and cons of the company and the pros seem to outweigh the cons by
a large margin. It is an international recognized brand and is the leading supplier of apparel and
athletic shoes worldwide. It operates in hundreds of countries and continues to invest in research
and development for future products. Nike associates itself with the most famous and successful
athletes of all time, and it has also joined with subsidiary brands to enhance its position in the
market. The only downfall is that Nike operates in poor countries, which has raised some ‘unfair
labor’ issues in the past. The company relies on international trading, so selling and buying in
different currencies can lead to some risk in dealing with foreign exchange. The Economy’s
recession did pose a threat to the company, but it has regained stability since then and increased
its sales. Furthermore, the future product development and expanding product lines are driving
Nike’s growth and building brand equity, and this will help increase sales and continue to be on
top. In the last five years, Nike’s stock price has gradually increased each year until 2009 when
the economy suffered a recession. Nikes stock price suffered, but this was the same for every
company who was publically traded. It is a big thing that Nike has recovered so quickly and is
now at its highest stock price in five years. The income and balance sheets also show large
improvements from 2009 to 2010 which shows the financial strength of the company. Overall,
Nike Inc is a solid investment.
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Works Cited
Brettman, A. (2010, October 13). Nike. Retrieved October 20, 2010, from The Oregonian: Nike
grabs NFL uniform contract: Retrieved from http://lexisnexis.com
Brettman, A. (2010, September 21). Where to, from $19 billion? Retrieved October 20, 2010,
from The Oregonian: Sunrise Edition: http://lexisnexis.com
John's University Student Managed, Investment Research. (2004, April 4). Retrieved October 20,
2010, from Equity Research. Nike (NKE): www.stjohns.edu
Most Admired Companies in the United States, 2009. (n.d.). Retrieved October 20, 2010, from
Fortune, World’s Most Admired Companies (annual): http: 0-galent.
galegroup.com.library.lander.edu.
Nike Biz. (2010). Retrieved October 20, 2010, from http://nikebiz.com
Nike Consumer Affairs packet. (1996). Retrieved October 20, 2010, from History. Preliminary
Information: Iconography Explained: http://xroads.virginia.edu
Nike, Inc. (2006). Retrieved October 22, 2010, from Notable Corporate Chronologies. Online
Edition. Gale: http://0-galenet.galegroup.com.library.lander.edu
Snap Shot, Nike Inc. (2010, October 19). Retrieved October 2010, 2010, from Hoover's
Company Records - In-depth Records: http://0-www.lexisnexis.com.library.lander.edu
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