Nike Focuses On Core Brand With Spin-Offs, Sports Deals In 2012

Nike’s (NYSE:NKE) brand identity along with its strong marketing has been a key factor behind its global success. Nike recently sold its Cole Haan & Umbro brands to focus on its namesake brand. ^[1] Additionally, the company’s products were featured in several major global sporting events such as the Summer Olympics, NFL and UEFA EURO 2012.

Nike branded footwear and apparel account for approximately 80% of Nike’s value according to our estimates. The brand is well known globally, and we believe that significant opportunities exist in emerging markets where the purchasing power and the demand for branded sports products are rising.

See our complete analysis for Nike

Sold Umbro And Cole Haan To Focus On Nike Brand

Nike has focused on its smaller brands in the past to make sure that 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, leather shoes, loafers etc. are different from Nike’s core product assortments (athletic apparel, footwear & accessories). ^[2]

Although Umbro’s product offerings (soccer focused footwear, apparel and equipment) are similar to Nike’s, it accounted for a combined loss of $43 million in fiscal 2012 along with Cole Haan. Nike further expected a loss of $75 million from these two brands in fiscal 2013. Umbro’s sales were partly impacted by a weak performance from the English soccer team in Euro 2012 tournament.

The company recently stated that its decision to sell Umbro and Cole Haan will allow it to divert its resources to Nike, which still offers the highest growth potential. ^[3]

Leveraging Major Sporting Events

The 2012 NFL Season was significant for Nike as it entered a new five-year contract for exclusive rights to all of the National Football League’s team uniforms. The contract was previously held by Reebok. Nike is reportedly paying nearly $1.1 billion for it over the next five years. ^[4] Considering the enormous popularity of the NFL in North America, we believe the deal represents a good opportunity for Nike to showcase its athletic apparel. A recent poll suggested that the NFL’s popularity in the U.S. has risen and that 59% of the U.S. population follow this sport. ^[5]

We currently forecast roughly 5.5% share for Nike branded apparel in the global sports apparel market for 2013. In a scenario where this figure rises to 6% instead, there could be ~5% upside to our price estimate for Nike.

Nike also leveraged the summer Olympics and Euro 2012 to showcase its products. We expect Nike’s footwear division, which constitutes roughly 50% of its value, could be the biggest gainer from these sponsorships.

To note a historical precedent, during the 2008 Beijing Olympics, Nike introduced the Flywire and Lunar lines of footwear, which currently generate nearly $2 billion in annual revenues. ^[6]

Our price estimate for Nike is $56, implying a premium of about 5% to the market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Nike Agrees To Sell Cole Haan To Apax For $570 million, Bloomberg, Nov 17 2012 [↩]
2. Cole Haan [↩]
3. Nike’s Q2 fiscal 2013 earnings transcript, Dec 20 2012 [↩]
4. Nike’s New NFL Deal Bulks Up Its Sports Cred On Gridiron, Daily Finance, April 5 2012 [↩]
5. Poll finds NFL more popular then ever, NBC Sports, Oct 6 2012 [↩]
6. The Olympics – Investing In Sports, Jamaica Observer, July 4 2012 [↩]