Tags: Nike | global | branding | NKE

Nike On Track to Benefit from Global Branding

By    |   Thursday, 26 April 2012 04:22 PM

Nike (NKE) seems on track to benefit from the time it has spent building its global brand, despite slowness in Europe and uncertainty among U.S. consumers. Strong branding will help carry the company forward, on top of a boost from the upcoming Olympic Games in London, analysts contend.

Nike is the largest seller of athletic footwear and athletic apparel in the world. It sells through retailers, its own stores and on the Internet, and through a mix of independent distributors and licensees in more than 170 countries around the world.

Nike notes that virtually all of its products are manufactured by independent contractors, and that virtually all of its footwear and apparel products are produced outside the United States. Equipment products are made domestically and abroad. Nike also owns the brands Cole Haan, Converse, Hurley and Umbro.

During fiscal 2011, about 43 percent of sales occurred in the United States, the company reports. During that year, NKE’s three largest customers accounted for approximately 23 percent of sales in the United States.

“On a currency neutral basis, we experienced revenue growth in all Nike brand geographies except Japan and across all product types and categories. Brand strength, innovative products and strong category retail presentations continue to fuel the demand for our Nike brand products,” management told investors in its most recent filing.

A decline in gross margin was primarily driven by higher product input costs, including materials and labor, Nike said, although the decline was “more than offset the positive impacts of higher product selling prices, the growth of our (Internet) business and benefits from ongoing product cost reduction initiatives.”

Going forward, analysts expect upcoming European soccer championships and the London Olympic Games to have a positive impact for the shoemaker.

Nike is a behemoth in its sector, which is textiles, apparel and luxury goods, coming in at nearly $50 billion in market cap, compared to $4.06 billion for its peers. It has a trailing 12-month P/E of 22.71 and a five-year projected price-to-earnings-growth (PEG) ratio of 1.74.

Its projected earnings per share growth in the coming year is 17.44 percent, compared to 20.84 percent for the sector.

Strong fundamentals

Wall Street is generally positive on Nike, offering up a collection of buy calls with only a few negatives. Taking the buy or outperform view are UBS, Standard & Poor’s, Ned Davis Research, Jeffries, Stifel Nicolaus, Citigroup, Goldman Sachs, and Friedman, Billings, Ramsey & Co.

“We see strong fundamentals and exceptional global growth opportunities supporting the share price. While we expect heightened economic and political uncertainty to negatively affect consumer spending in Europe, we see NKE's leadership in the U.S., growing market penetration in China, and increasing brand awareness in emerging markets mitigating near-term investment risk,” write S&P analysts in a report dated April 3.

Nike next reports on June 21.

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