Nike Inc. (NYSE:NKE) is the largest manufacturer of athletic footwear, apparel and equipment worldwide by sales with close to $18.5 billion of revenues in 2009, far ahead of players like Adidas AG (ADDYY) and Puma (ETR:PUM). Nike sells its products under several brands which include Nike, Nike Golf, Converse, Cole Haan, Umbro and Hurley. Nike branded footwear is the most important contributor to Nike’s stock, accounting for close to 44% of the $68 Trefis price estimate for Nike’s stock.
Under the Nike brand, the company sells footwear in categories like training, running, basketball, sports-inspired casual shows and kids shoes. Nike’s footwear has seen nearly consistent growth in its market share.
Despite emerging competition from low-priced competitors, we expect Nike brand footwear to continue gaining market share in global sports footwear market and reach a figure of about 18.6% by end of our forecast period.
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Below we discuss factors behind our bullish take.
Innovation and continuously evolving products are likely to remain key elements for Nike’s growth
Nike has a strong R&D division and is known for its continuously generating new products. For example, Nike and Apple recently collaborated to create a footwear product that communicates information regarding distance and speed to a runner’s iPod.
Furthermore, the company is able to command a premium for its products. With an average price of over $100, the company’s popular Air Max Plus is an example Nike’s ability to sell innovative products despite weak consumer demand.
Direct-to-consumer sales offer greater convenience for customers
Direct-to-consumer business, which refers to direct sales by Nike to consumers through its own branded retail outlets and online, represents a growing opportunity for the company. Nike’s direct-to-consumer sales grew by 14% in Q2 2010 with online sales growing even faster (23%) than sales at Nike owned stores (9%).
FIFA World Cup likely to give a boost to sales
World Cup Soccer is one of the biggest and most popular worldwide sports events that generates a great amount of buzz and coverage. Several big sports footwear brands like Nike tend to take advantage of this sports season and spread brand awareness, thus creating demand for their products. Nike’s advertising campaign during the world cup is likely to result in additional sales and market share gains even now that the cup is over.