Nike is the largest seller of athletic footwear and apparel in the world. The company designs, develops and sells athletic footwear, apparel, equipment, accessories, and services.
Nike’s reportable operating segments are: North America (41% of 2018 revenues); Europe, Middle East & Africa (25%); Greater China (14%); and Asia Pacific & Latin America (14%); Converse (5%) and others (1%). Its product offerings can be categorized into Running, NIKE Basketball, the Jordan Brand, Football, Training, and Sportswear. Nike also sells sports apparel in these categories.
Nike sells its products through company-owned retail stores and digital platforms (“NIKE Direct” operations). The company operates a network of independent distributors, licensees and sales representatives in virtually all countries around the world. Almost all of Nike’s footwear and apparel products are produced outside the U.S., while equipment products are produced both in the U.S. and abroad. NIKE has seven significant distribution centers in the U.S. The company’s effective sourcing as well as its wide distribution of products and strong presence both in-store and online supports its extensive global presence.Investment Data
- Opportunity Score: 66
- Ticker: NYSE:NKE
- Sector: Consumer Cyclical
- Industry: Manufacturing - Apparel & Furniture
- Market Cap: 140.20B
- P/E: 33.51
- Dividend Yield: 0.98
- Dividend Payout Ratio: 32.12
- FFO Payout Ratio: Dividend Snapshot Members Only
- FCF Payout Ratio: Dividend Snapshot Members Only
- Chowder Score: Dividend Snapshot Members Only
- Piotroski-F Score: Dividend Snapshot Members Only
- 3, 5, 10-year Revenue Growth: Dividend Snapshot Members Only
- 3, 5, 10-year Dividend Growth: Dividend Snapshot Members Only
Revenue Growth & Market Exposure
Nike is a powerful global company with a distinguished brand in the marketplace. Sportswear, Running and the Jordan Brand are Nike’s top-selling footwear categories. The company’s footwear products are designed not only for specific athletic use but are also worn for casual or leisure purposes. The company also market products designed for kids, as well as for other athletic and recreational uses. Customers choose Nike owing to its product attributes such as quality, performance, and reliability.
Converse sales in the U.S. accounted for approximately 42% of total revenues, while non-U.S. NIKE brand and Converse sales accounted for ~58% of total revenues in 2018. The company has 124 footwear factory suppliers located in 13 countries and 328 apparel factory suppliers in 37 countries. Nike enters into manufacturing agreements with independent contract manufacturers in different countries to manufacture footwear for sale primarily within those countries. Over the years, Nike has developed strong ties with suppliers worldwide.
Nike’s revenues grew by 7% in the last year. The company has a strong focus on innovation, speed and making direct connections with consumers. It is also emphasizing on keener analytics and insights to further deepen customer relationships. The company is strongly focusing on 12 key cities and 10 key countries for expansion. It increased its NikePlus membership base to 170 million members serving them through unique digital apps and retail experiences.
Nike is an innovative company. It has a strong brand recall and a huge global customer base. The company witnessed ~100% of its total incremental growth driven by new innovation platforms in FY19. Its digital revenue grew 35% with the expanding NikePlus membership.
Nike is a Dividend Achiever. It has paid dividends continuously for more than 25 years and has increased them every year for the last 17 years. The company has an annual average yield of 0.94% and a reasonable payout ratio of 32%. Nike last raised its dividend by 10% and has compounded its dividend growth at a rate of 12.5% annually over the last decade. As of August 2019, Nike repurchased a total of 23.5 million shares for ~$2 billion.
Nike should gain from its deep consumer connections and a strong affinity for its brands and products. The company is the largest sports footwear and apparel company in the world today. The company has a sound track record of stellar performance across all categories and geographies. Nike’s amazing products, an iconic brand and digital experiences are its biggest competitive strengths which have led to the consistent growth in both revenue and earnings over the years. The company is better positioned to weather rapid changes in technology and consumer preferences in the markets. Other than organic growth, Nike is also growing through acquisitions. The company has guided its full-year revenue to grow in the high-single-digit range and has the potential to grow its dividend in the double-digit range in the future.
The athletic footwear, apparel, and equipment industry is highly competitive. Nike competes internationally with a large number of athletic, leisure footwear and apparel companies, as well as sports equipment companies. Anta, ASICS, Li Ning, Lululemon Athletica, Puma, Under Armour and V.F. Corporation are a few of Nike’s leading competitors. Nike’s focus on delivering innovation for everyday athletes sets it apart from competitors. The company spends nearly 10% of its revenues on advertising and promotion to stay ahead in the race.
Nike’s digitally-led focus on innovation and speed will help it transform its products and reshape consumer experiences. The global footwear and sports apparel market is very large and should continue to grow in the future. The company is in a good position to leverage its leading market share and gain from growing demand in sports and play. As a leading consumer products company, Nike should continue to gain from the growing consumerism around the world.
Nike is definitely a stock I have overlooked and I have now put it on my short list based on its performance and the dividend growth. It’s clear the brand is strong and the products continues to resonate with consumers. From a dividend yield perspective, MA and V still outperforms if you wanted to compare low yield and high growth stocks with each other but COST is in the same league.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.