Nike Sharpens Focus On Core Brands With Cole Haan Sale

by Trefis Team
-24.43%
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Market
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Trefis
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Nike (NYSE:NKE) recently completed the sale of its Cole Haan division to Apax Partners in order to get rid of the loss making business as well as focus on what it views as its core sports related brands. This decision followed the sale of Umbro last month, and the transaction will be complete in the early part of 2013.

Cole Haan is a little different than Nike’s its standard offerings, best known for its handbags and leather dress shoes. The sale will enable Nike to improve its focus on other brands such as Jordan, Hurley and Converse, as their product offering is similar to Nike, i.e. athletic apparel & accessories as well as sneakers. Moreover, Cole Haan and Umbro cumulatively incurred losses in the previous fiscal year, and the retailer expected the same in fiscal 2013 as well. [1]

The revenues from these two brands only account for about 3% of Nike’s total revenues, and so the absence of these brands is not going to make material difference to Nike’s long-term growth in our view.

See our complete analysis for Nike

What Inspired The Sale?

In our pricing model, we combine Cole Haan, Hurley, Converse, Umbro and other brands under a single division. This constitutes about 5% to the Nike’s value according to our estimates. Although, this might seem to be an insignificant driver for the stock, Nike has been focusing on its small brands to make sure they are complementary to Nike’s brand image. Even though Cole Haan has good brand appeal and potential, its product offerings such as leather handbags and shoes are different from Nike’s general product assortments. And so its its sale will enable Nike to improve its focus on other brands.

Moreover, Cole Haan and Umbro accounted for a combined loss of $43 million in fiscal 2012. Nike further expected a loss of $75 million from these two brands in the current fiscal year. This is likely another reason why Nike decided to sell these brands. Umbro’s sales were in part impacted by a weak performance from the English soccer team in the Euro 2012 tournament, and with the sale of Umbro, the England football jerseys will be transferred to Nike.

Impact On Nike From Sale Of Cole Haan And Umbro

Nike will be selling Cole Haan for $570 million which is roughly about same as the annual revenues from this brand. [2] The retailer bought the brand in 1988 for $95 million. [1] Last month Umbro was sold for $225 million, which was less than its annual revenues for fiscal 2012, and Nike bought Umbro in 2008 for about $583 million. [3]

When adjusting our pricing model, we see the financial impact as negligible.

Our price estimate for Nike at $109, implying a premium of about 20% to the market price.

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Notes:
  1. Nike Agrees To Sell Cole Haan To Apax For $570 million, Bloomberg, Nov 17 2012 [] []
  2. Nike To Sell Cole Haan For $570 million, The Wall Street Journal, Nov 16 2012 []
  3. Nike Agrees To Buy Umbro For $583 million, Market Watch, Oct 23 2007 []
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