From January 1990 until September 6, 2019, Nike stock has returned roughly 17,141% versus 743% for the S&P 500. That’s just over a 20x return over “the market” over a 29 year period. That’s what we call a Mega-Brand.
Screen Shot 2019-09-24 at 2.41.31 PM.png
 

COMPANY PROFILE

NIKE designs, develops, markets, and sells athletic footwear, apparel, equipment, and accessories worldwide. The company offers NIKE brand products in six categories, including running, NIKE basketball, the Jordan brand, football, training, and sportswear. It also markets products designed for kids, as well as for other athletic and recreational uses, such as American football, baseball, cricket, golf, lacrosse, skateboarding, tennis, volleyball, walking, wrestling, and other outdoor activities; and apparel with licensed college and professional team and league logos, as well as sells sports apparel. In addition, the company sells a line of performance equipment and accessories comprising bags, socks, sport balls, eyewear, timepieces, digital devices, bats, gloves, protective equipment, and other equipment for sports activities; and various plastic products to other manufacturers. Further, it provides athletic and casual footwear, apparel, and accessories under the Jumpman trademark; casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks; and action sports and youth lifestyle apparel and accessories under the Hurley trademark. Additionally, the company licenses agreements that permit unaffiliated parties to manufacture and sell apparel, digital devices, and applications and other equipment for sports activities under NIKE-owned trademarks. It sells its products to footwear stores; sporting goods stores; athletic specialty stores; department stores; skate, tennis, and golf shops; and other retail accounts through NIKE-owned retail stores, digital platforms, independent distributors, licensees, and sales representatives. The company was formerly known as Blue Ribbon Sports, Inc. and changed its name to NIKE, Inc. in 1971. NIKE, Inc. was founded in 1964 and is headquartered in Beaverton, Oregon.

 

Recent Earnings

“The global shift to more active lifestyles continues to be strong”.

NIKE digital grew over 70% in Q1, in part amplified by our strategic partnerships with Tmall and WeChat.

  • Fiscal 2020 financial results for its first quarter ended August 31, 2019.

  • Important: Nike one has roughly 58% of sales outside North America, plenty of room for further international expansion.

  • Digital grew 30%+ YOY.

  • We see strong continued digital growth in Europe. Total revenues +6% Europe, Middle East, Africa.

  • Strong YOY growth in China +27% across all segment. Q1=21st consecutive quarter with double digit growth in China.

  • China digital +70% YOY in partnerships with WeChat.

  • Revenue increased to $10.7 billion in the first quarter, up 7 percent - driven by growth across all geographies.

  • EPS growth of 28% & high returns on invested capital.

  • “NIKE’s strong product innovation, combined with our industry-leading digital experiences, continue to deepen our consumer relationships around the world.”

  • Diluted earnings per share for the quarter was $0.86, an increase of 28 percent driven primarily by strong revenue growth and gross margin expansion.

  • Targeted strategic investments are accelerating NIKE’s digital transformation.

  • Revenues for the NIKE Brand were $10.1 billion, up 10 percent.

  • Revenues for Converse were $555 million, up 8 percent - double-digit growth in Asia and through digital globally, which was partially offset by declines in the U.S.

  • PRICING POWER - Gross margin increased 150 basis points to 45.7 percent primarily due to higher average selling prices and margin expansion in NIKE Direct.

  • Inventories for NIKE, Inc. were $5.8 billion, up 12 percent compared to the prior year period, reflecting strong consumer demand globally.

  • Cash and equivalents and short-term investments were $3.6 billion, $625 million lower than last year as share repurchases, dividends, and investments in infrastructure more than offset proceeds from net income.

  • During the first quarter, NIKE, Inc. repurchased 11.9 million shares for approximately $995 million as part of the four-year, $15 billion program approved by the Board of Directors in June 2018. As of August 31, 2019, a total of 23.5 million shares had been repurchased under this program for approximately $2.0 billion.

  • Cash and equivalents and short-term investments were $4.7 billion, $582 million lower than last year as share repurchases, dividends, and investments in infrastructure more than offset proceeds from net income.

  • NIKE, Inc. repurchased a total of 54.3 million shares for approximately $4.3 billion under the above mentioned $15 billion program currently in use as well as the previous $12 billion program approved by the Board of Directors in November 2015.

  • Despite unpredictable macro factors, consumer sentiment towards the Nike brand remains strong. They have a history of remaining agile. Strong results despite strong FX headwinds & tariffs.

 

Opinion

From a factor scoring perspective versus the other 199 brands in the brands index, here’s where Nike scores well as of 9/17/19:

  • 93% low debt to enterprise value

  • 94% high operating ROIC over the weighted cost of capital (WACC)

  • 90% high operating ROIC

  • 86% high 1 year EPS growth

  • 83% high quality, low leverage rating

  • 82% high 3YR ROE average

This quarter again shows how much pricing power Nike has and how many levers they have to adapt to external issues like trade wars and unpredictable macro events. Nike is a growth brand and they continue to deliver on new innovations across products and digital technology. They are making strategic acquisitions where appropriate and in data science categories. Nike is a staple of the brands portfolio and I don’t see that changing any time soon. Why? Because they sell everyday apparel, shoes, and sports gear around the world and they have the pricing power needed to keep margins and demand high. Pricing power is a staple of aspirational brands and it’s one of the things that makes such a monster stock over the long-term. Nike ads probably inspire me more than any other brands. Nike is absolutely the best marketing firm that’s ever been created. Every once in a while they have a mis-step, the stock pulls back, and you get a chance to buy more. Yes, comps are high for the next quarter or two so we may get our chance to buy on a dip but I have no doubt Nike will continue to fly and dominate the global shoe and athletic apparel markets for a very long time.

Nike is easily a top 5 most recognized and admired brand around the world. Make no mistake, Nike is a growth company. They do not rest, they do not settle, they do not like to lose. As an investor in great brands, what else could you want from a management team? From its humble beginnings with Phil Knight selling shoes out of his car, Nike has become the most dominant and profitable shoe company on the planet. It’s popular advertising campaigns have created brand loyalty like few other brands in history. Nike has figure out how to tap into our inner-most drive and strength to be more than we currently are. Sometimes their ads are controversial, which often drives an even more positive feedback loop in the end. Nike’s marketing prowess is truly a thing of beauty. Nike has evolved to a lifestyle brand and sells high quality apparel and shoes at a variety of important price points. Here’s a great paragraph from Nike’s 2018 Annual Report:

Every idea we have…every service we develop…and every innovation platform we create—all stem from the same source: the voice of the athlete. And with our unrivaled global presence, brand strength, and innovation in data, we know athletes better than ever. To serve today’s athlete, we’re combining the agility of a local business with the scale of a global brand. Like never before, we’re able to envision—and then deliver—the future of sport. We aim for nothing less. Because, at Nike, our mission is bold: to bring inspiration and innovation to every athlete in the world.
— 2018 Nike Annual Report

Their current focus: Major digital transformation, keeping the highly attractive China opportunity ramping, maintaining strong pricing power, innovating through a huge technology platform inside apparel and footwear. International growth accounted for 100% of Nikes full year growth so there’s further room to grow and thrive outside the U.S. and Nike finally saw the U.S. business stabilize last quarter. Innovation will drive growth and the acceleration of growth.

The stock is still not cheap but great growth brands that continue to innovate and hold strong pricing power with strong balance sheets do not get cheap very often.