Nike Runs Great in 2013
Josef Ray is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Nike (NYSE: NKE) came out with great news as its second quarter fiscal 2013 report reflects an EPS of $1.14, higher than last year’s closing profit of $1.03 and surpassing the initial consensus estimate of only $1.00 EPS for this quarter. An 11% growth following every passing quarter boasts a consistent and gradual increase in revenue and market share for existing stockholders.
A global groundbreaker in the design, production, and marketing distribution of sports gear, equipment, and accessories, Nike is one of the top companies to reckon with alongside Adidas AG (NASDAQOTH: ADDYY), PumaSE and Brown Shoe Company (NYSE: BWS). All four are multinational corporations that sell athletic shoes and apparels, and closely rival each other in sales and revenues in a worldwide scope. These companies compete in both the domestic and international markets, as each tries to dominate the market share in the footwear and sports clothing industries.
Running in the Global Market
For this quarter, Nike’s other income netted $17 million worth of foreign exchange profits and returns on other non-operating categories. This estimate already reflects the currency-dependent gains and losses and the fluctuations in the exchange rates of profits made in foreign countries. Domestic demands for this brand have also gone up, making Nike’s shares jump for this quarter while expecting the craze to grow substantially in the coming fiscal term.
Nike’s aggregate revenue increased to $5.955 billion, a 7% growth, as reflected in the final fiscal tally. Though these figures are rather impressive, the company did fall short of the quarterly revenue projection made by Zacks Investment Research of $6.019 billion, attributing the miss to market currency changes.
How Opponents are Racing Up
Nike is a brand that is well known to people, so competitors in the industry are doing their part to win hearts and minds as well through new marketing strategies and process improvements that affect sales. Adidas is expecting to see a 15%-17% increase in net profit for 2013. Moreover, the three-striped sports apparel company’s 11% growth in revenue in both the European and the Asian markets has alarmed the other giants in the industry, causing Nike to liquefy some of its sub-brand companies in response to the growing challenge.
Puma SE made some interesting developments with a revolutionized line of biodegradable and recyclable shoes, apparel, and accessories, which may hit stores sometime in spring or summer of 2013. This will surely pressure the other companies to come up with other environmental efforts to rival Puma’s upping the ante of sports lifestyle wares.
Nike has not been able to penetrate the Chinese market, which could have been a great market for the company. This is where the Brown Shoe Company has excelled, with retail establishments created all over China under the Famous Footwear and Naturalizer brands, carrying its entire line of shoes: Naturalizer, Dr. Scholl's Shoes, LifeStride, Sam Edelman, Franco Sarto, Via Spiga, Vera Wang, Avia, and Ryka.
Lessening the Burden and Increasing the Focus
Nike made some multi-million changes to its current business portfolio with the goal of guaranteeing that only efforts that contribute to the maximum use of its resources are being subsidized. This explains the completed sale of the Umbro brand, the company’s previously wholly-owned subsidiary, for $225 million to the Iconix Brand Group. Nike has also divested its ownership of Cole Haan, another brand subsidiary, worth $570, million to Apax Partners. The sale is expected to be completed within the third quarter of fiscal 2013. The income generated from these sales will be directed at steering progress to the Nike, Jordan, Converse, and Hurley brands.
A 10% increase, or $1.2 billion, in overhead expenses was devoted to Nike’s mission of strengthening direct-to-consumer services and led to the launching of more brand outlets and stores. A review of the balance sheet for continuing operations reflects an increase of $3.3 billion of inventories for Nike, 9% greater than the figures from 2011. For the Nike brand alone, the inventories are up by 8%, 6% of which is comprised by the supplies in wholesale channels intended for future trading, while the remaining 2% is credited to the rise in production costs per marketing unit. The data suggests that the company has a clear vision of what it wants to achieve in the third fiscal quarter.
Why Nike Gives a Good Run for Investment
Though Nike, Adidas, Puma, and Brown Shoe Company all rely heavily on retail establishments to bring their products to consumers, the escalating demand for Nike products has prompted the company to further invest in wholesale efforts. However, because of the strengthening pulse of the consumers’ demand for the brand, Nike makes sure that its sought-after line of performance equipment is accessible, positioning itself even more sturdily in the market. In the end, though other shoe companies have their own innovations, it is obvious that Nike knows that the market demands more and, in turn, always puts its best foot forward.
JosefRayDagatan has no positions in the stocks mentioned above. The Motley Fool owns shares of Nike. Motley Fool newsletter services recommend Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!