Nike (NYSE:NKE) operates globally across North America, Europe, Greater China, Japan and other emerging markets. However, the dynamics of Nike’s growth in each of these markets are quite different. While North America remains the most important market for the retailer due to its large size and sustained growth, there is good growth potential in China once the economy picks up. The growth has been slow in Europe due to the current weak economic environment. Nevertheless this region is still the second biggest market for Nike.
Nike has a strong brand identity globally and given the increasing demand for branded sports apparel and footwear in emerging markets, it has a good opportunity to leverage its popularity and expand.
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Strong Brand Recognition And Innovative Products Lifting Nike In North America
North America is the most important market for Nike, generating around 50% of its annual revenues. Despite such a large contribution, the revenues from this region have registered a substantial growth in the last four quarters, ranging between 10% and 17%.  Nike’s performance in North America can be attributed to its strong brand recognition. Sporting events like the Olympics and its endorsement of the NFL have further enhanced Nike’s brand image among sports fans.
According to the retailer, its innovations such as Flyknit, FuelBand, Pro Combat, Lunar and Free have also strengthened the customer’s confidence in Nike brand sportswear.  Flyknit provides extra cushion in sports shoes, FuelBand tracks daily physical activities of the user and Pro Combat provides light weight armor for American football players.
Nike has proved that innovation and strong marketing are key elements of success when it comes to sports apparel and footwear industry. We expect the company to do well in North America in the near term as the competition still seems to be lagging in terms of the aforementioned factors.
Expect Good Growth In China Once The Economy Picks Up
Currently China contributes only about 10% to Nike’s overall revenues.  However, the region provides huge market potential due to its enormous population, booming middle class and rising disposable income. Lately, the retailer has been facing problems in the region due to weak economic environment. Although historically Nike has seen impressive results in China, the growth plummeted to minus 11% in the recent quarter as the country’s GDP growth slowed down. 
We believe that once China’s economy picks up, Nike can generate substantial revenues from the region if it is able to adapt its products to align them with the needs of the Chinese buyers. According to Nike, Chinese consumers are becoming more sophisticated and want innovative and specifically tailored products. Nike is taking initiatives such as leveraging its brand strength in the 60-day festival of sports to better connect with customers, improve performance, style and fits in its apparel range. It is also focusing on improving the productivity of its Nike branded stores. 
Weak Economic Environment In Western Europe Weighing
Western Europe has been particularly weak for Nike. For the past three quarters, the region’s revenue growth has stayed significantly below Nike’s overall revenue growth.  Europe’s weak economy is the primary culprit. According to the United Nations, the aggregate GDP of Western Europe will only increase by 0.9% in 2013.  Therefore, we do not expect any respite for Nike in this region in near-term. The growth in Europe for other apparel retailers such as Abercrombie & Fitch (NYSE:ANF) and Guess (NYSE:GES) has also suffered for the same reason.
Our price estimate for Nike is $56, implying a premium of about 5% to the market price.Notes: