Current Event Summary Report

Calvin Luu

Finance 4610 – Professor Wang – Fall 2015

Current Event Summary Report - Due Decemeber 8th, 2015

Nike beats expected earnings by a landslide

Nike was founded on January 25th, 1964 as Blue Ribbon Sports, by Bill Bowerman and Phil Knight. They officially changed their name to Nike on May 30th, 1971, deriving it’s name from the Greek goddess of victory. By 1980, Nike wage rapidly growing and obtained about 50% of the market share in the U.S. athletic shoe market. The company went public in December of that year.

NIKE, Inc., along with its subsidiaries sells athletic footwear, apparel, equipment, and accessories for men, women, and kids worldwide. The company offers products in many different categories, some of which include basketball,

men’s training, football, mens and women’s training, sportswear, running, and golf under the NIKE and Jordan brands. Converse has been in existence since 1908. In 2003, Converse was purchased for $305 million by Nike and has now turned into a subsidiary of Nike, Inc.
Nike trades under the ticker, NKE, and is traded on the New York Stock Exchange. It’s industry is considered textile, which contains apparel, footwear and accessories. It’s current stock price as of 11/08/2015, after hours, is 131.78. Nike’s beta is currently 0.718 and has a 52 week range of 90.69 - 133.52.

Here we have a chart of Nike’s stock price over the past 5 years:

We can see that Nike’s stock price has been increasing every year and will just keep on rising. Nike recently announced its earnings for the 4QFY15 on June 25, 2015 and Nike’s results beat market expectations by a huge margin. It’s projected revenue was $7.7 billion but the company’s actual revenue rose by 4.8% to $7.8 compared to the most previous quarter. It was also projected that Earnings per share (EPS) for the quarter would be $0.83 but the actual EPS was $0.98, a whopping $0.15 difference in projection. This is the 12th straight quarter of earnings beats by the company. The chart belows shows just how much of a strong buy Nike is.

For both fiscal 2015 and fiscal 2014, NIKE Brand, Jordan and Converse domestic sales in the United States totaled for approximately 46% of total revenues, compared to 45% for fiscal 2013. NIKE Brand, Jordan Brand, Hurley and Converse products aresold to thousands of retailers in the United States in a variety of stores. Some of these stores include footwear stores, sporting goods stores, department stores, tennis, skate, golf shops and others.
Here we have a chart showing the number of U.S. retail stores controlled and owned by Nike:

For both fiscal 2015 and fiscal 2014, NIKE Brand, Jordan and Converse’s international overseas sales accounted for 54% of total revenues, compared with 55% for fiscal 2013.

Nike sells their products to these retailers oversea independent distributors, licensees and sales representatives around the world. They sell to thousands of retailers and ship products from 45 distribution centers outside of the United States. During the fiscal of 2015, NIKE’s three largest customers outside of the United States totaled for approximately 12% of total non-U.S. sales.

Their business goes directly from Nike itself to the customer, with their own brick and mortar stores. They operate a number of retail stores internationally, outside the United States. In addition to Nike and Converse owned e-commerce websites in over 25 countries, we can see their non-U.S. retail stores in the chart

below.

NIKE is currently the largest seller of athletic footwear, apparel and equipment in the world. Nike’s three main competitors for the sneaker industry are Under Armor (UA), Adidas (ADDYY) and Skechers (SKX). In terms of market share, Nike's biggest competitors are Adidas and Under Armour. Other competitors include Skechers, Puma, and Li Ning. Nike is the global market leader in its sector, but it faces increasing competition in Europe and China. Nike most recently performed well in Western Europe, which was traditionally dominated by Adidas. Not so long ago, Adidas lowered their full-year guidance and they blamed weaker consumer demand. It seems that only Adidas experiences weaker consumer demand for its products, they must be lacking something, because Nike, was able to grow revenue by 25% in Western Europe.
Nike’s second biggest competitor is Under Armour, one of Nike's most important competitors in North America. Nike beat Under Armour in its attempt to sign Kevin Durant, the 2014 NBA MVP. By signing Kevin Durant, Nike secured its position in the North American basketball shoe market, which was highly profitable. The company also introduced the new LeBron 12 basketball sneaker. This product become a bestseller for Nike and is definitely one of the stepping stones for further revenue growth.
The athletic footwear, apparel and equipment industry is a highly competitive market on a worldwide basis. Nike competes internationally with a significant number of other athletic apparel which include, V.F. Corp., lululemon athletica, and UNIQLO. The competition in intense and there are always changes in technology and consumer preferences and trends. Because of this, it creates significant risk factors for Nike’s operations.
The following graph below shows a five-year comparison of the total returns for NIKE’s Class B Common Stock, the Standard & Poor’s 500 Stock Index, the Standard & Poor’s Apparel, Accessories & Luxury Goods Index and the Dow Jones U.S. Footwear Index. We can see that Nike outperforms all benchmarks.

Recently, an announcement on September 24, 2015, after close, Nike revealed its earnings for the first quarter in fiscal year 2016.

The projected EPS was $1.19 and projected revenue was $8.22 Billion. The actual projected EPS and revenue is $1.34 and $8.41 Billion, respectively. Wall Street analysts say that sales this quarter was boosted by its basketball and casual running footwear, with a majority of its revenue coming from back-to-school sales. With the upcoming Christmas holidays, many project and predict a huge surge in stock price, due to theholiday sales. If there is a huge rise in stock prices, Nike’s revenue and earnings will rise

drastically.
One recent news event about Nike that I found interesting is that Nike pledges to use 100% renewable energy by 2025. Nike is one of 36 large business who pledged to use 100% renewable energy. They plan to hit this mark by 2025. By doing so, this raises environmental awareness and helps the environment. Nike has been heavily investing into more sustainable methods to make shoes. Two methods they currently use are Flyknit Technology, which reduces production waste and ColorDry, a waterless dyeing technology. Flyknit Technology was debuted in 2012. It is a knitting technology where the shoe is weaved. The shoe's upper half is waved into one piece, instead of several pieces that are stitched together. The technology reduces labor costs by up to 50% and it also cuts material usage by up to 20%. This resulted in .25% higher margins. Although .25% does not sound like a lot, it is, because Nike’s revenues are in the billions.
All of Nike’s past revenue and earnings point to a future increase in stock price. I believe NKE is a must buy and a strong buy. It is almost guaranteed to grow, as shown by historical trends. Nike has been continuously outperforming and beating its competitors. Nike already has a huge market share in the U.S. and just recently took over the market share in the regions of Western Europe and China. There was never one earnings announcement where Nike did not outperform it’s expected numbers. Every quarter their numbers just increase drastically. If one wants to grow their money, they should invest and believe Nike, there is no doubt that this is definitely a company with extreme growth.