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Nike stock doing well, but be aware of trends

By: Ryan T. Fulmer
Friday, June 7, 2019

Nike, Inc. (NKE), founded in 1964 by Phil Knight, is the largest seller of athletic footwear and apparel in the world, with over $36 billion in world-wide sales.   


Nike has three primary segments: Footwear (65%), Apparel (31%), and Equipment (4%) and several different product categories, with the largest being sportswear (33%), running (17%), and the Jordan brand (9%).


Over the last few years, Nike has shifted its strategy from distributing products widely through wholesalers to selling its products through Nike-owned retails stores, the company website, and retail accounts. A great example of Nike’s strategy can be seen at Dick’s Sporting Goods in the dedicated Nike section called “Nike Fieldhouse”.


In 2014, North American sales growth peaked and, until recently, had been slowing. Part of Nike’s recent pick-up in growth has been attributable to its shift from wholesale sales to limited retail partners and direct to consumer channels. In 2012, wholesale accounts represented almost 83% of North American sales, compared to only 69% today.


The shift towards direct-to-consumer has been facilitated by Nike’s strong website (or Nike By You) that allows customers to create custom shoes for running, soccer, and basketball. Supply chain and technological improvements allow delivery of custom shoes much more quickly than that of their competitors, while also earning better gross margins.

 

One key strength for Nike is their international sales exposure, which has been gradually shifting away from North America, which today only represents 57% of sales. Strong Chinese sales growth of high teens to low 20 percent over the last few years has contributed meaningfully to Nike’s top and bottom-line.


Over the last few years, the shift from wholesale toward higher margin e-commerce has started to lift profits, which Nike’s stock price has reflected.

 

As with any retailer, investors should always be mindful of how fickle consumers can be of fashion trends.

 

Beese Fulmer Private Wealth Management was founded in 1980 and is one of Stark County’s oldest and largest investment management firms. The company serves high-net-worth individuals, families, and non-profits, and has been ranked as one of the largest money managers in Northeast Ohio.

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