Topline: Nike, already the world’s dominant athletic footwear and apparel brand, hit an all-time high share price on Wednesday, boosted by a successful digital transformation, high demand for athletic products and product innovation that is faster than its competitors.
- Nike surged 5.5% after smashing expectations on its first-quarter earnings report yesterday, soaring past its previous record high of $90 per share. The stock opened at an all-time high Wednesday and is now up almost 18% for the year.
- The company cited new product innovation and investments in e-commerce for helping boost results, as it continues to maintain a leading position in the athleisure and street fashion trend.
- Furthermore, “Nike’s digital investments continue to bear fruit,” as Jefferies analyst Randal Konik says. Digital sales spiked 42% from a year earlier, as the company has increasingly been investing in apps and online selling platforms—which further helped drive overall sales growth. As a result, Nike has increasingly adopted a direct-to-consumer strategy for its business, discarding the traditional method of selling products through retailers.
- The latest earnings show that despite trade tensions between the U.S. and China, the company wasn’t hit as hard by tariffs as some of its peers. Global sales grew 7% from a year earlier to $10.7 billion (above the expected $10.4 billion, according to FactSet). That growth was largely driven by revenue in China, which surged 22% to $1.7 billion.
- Wall Street had a field day with Nike’s first-quarter earnings report, which widely surpassed even the loftiest expectations. Many analysts rushed to upgrade the stock’s price target and rating: Over 70% recommend it as a “buy,” according to Bloomberg data.
- While Adidas is still the company’s biggest rival globally, it “has lost market share to Nike in some areas,” Morningstar analyst David Swartz told Forbes. He also pegs ANTA, the largest Chinese sportswear company, as a legitimate competitor in China, though its market share still lags slightly behind Nike and Adidas. He identifies the region as a huge growth market and highlights the 2020 Olympics as another big event where Nike will do well: “That should give them a big boost in Asia.”
Crucial quote: In a call with analysts Tuesday evening, CEO Mark Parker reiterated that demand for athletic product remained high worldwide. He highlighted women’s apparel, which also grew at a double-digit rate last quarter, as another high priority growth area for the company. “The opportunities ahead are as bright as I’ve ever seen them,” Parker said.
What to watch for: While Nike’s performance and revenue growth was stellar, the valuation of its stock price is somewhat expensive relative to its peers, according to Konik. Nike currently trades at a price-to-earnings ratio of 32.5—compared to Adidas, at 29.5, for instance. The company will need to maintain its rapid pace of growth in the next few years to justify its valuation, but that may well be possible, as Nike has momentum in its favor. They “crushed it” in the latest quarter, according to Konik, who puts the stock’s price target at $97 thanks to the “ongoing power of its brand.”
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Source: With Its Stock Hitting An All-Time High, Here’s Why Nike Is So Dominant
Nike is one of the most recognized brands in the world. It continues to surpass rivals like Adidas and Under Armor, despite controversy and slowing sales growth in U.S. How did Nike become the giant it is today? Nike’s iconic swoosh logo and “Just Do It” slogan are universally known. As of June 2019, Nike is valued at nearly $130 billion, making it one of the most valuable companies in the world. It’s popular shoe lines include the Nike Air Max, Nike Air Force 1, Nike VaporMax, Nike Cortez, and of course, Air Jordans. Air Jordans, combined with an advertising strategy that embraces controversy and exclusive contracts with some of the biggest sports leagues in the country have helped Nike succeed. But sales growth in North America is slowing down and and sneaker sales aren’t growing as fast as they used to. Nike also faces criticism for its treatment of female employees, which is something the company will need to work on as it tries to make Women’s apparel and sneakers a bigger part of its strategy. Will Nike continue to grow or will Adidas, Under Armour, and other brands continue to eat into its market share? » Subscribe to CNBC: https://cnb.cx/SubscribeCNBC
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How Nike Became The Most Powerful Brand In Sports
Starting this week, Nike will begin offering a subscription service for kids who want to stay stylish throughout the year. The service will offer three pricing tiers of $20, $30, and $50 per month. The cheapest option in the Nike Adventure Club will let kids get new sneakers every three months. The middle tier will allow for sneaker upgrades every two months and the most expensive option will allow for upgrades every month.
If the program, which is only available to children between the ages of two and 10, sounds familiar, it’s because the technology industry has turned subscription models into an exceedingly profitable business model.
Nowadays, it’s nearly impossible to find a prominent technology company that isn’t charging subscription-based access to something. Amazon does it with Prime, Apple does it with iCloud and Apple Music, Google does it with G Suite, and Netflix gives you access to its entertainment library for a monthly fee.
The reason subscriptions have become so popular is consumers and businesses find it, in some ways, more appealing. Instead of plunking down hundreds or thousands of dollars on a new solution and with a limited budget, companies are instead offering nominal monthly fees. Consumers and businesses then pay those fees each month, feeling as though the $10-a-month charge for Apple Music, for instance, is a small price to pay.
Companies, meanwhile, love the subscription models. Sure, they’re not getting so much upfront, but they’re getting a little bit each month. And as long as consumers or businesses stick with them, they can make far more over the years than they might in a traditional business model.
If we’re to assume that kids get a new pair of sneakers every year or every other year to accommodate their growth, even for an expensive $100 pair of sneakers, we can safely assume that they’ll pay no more than $200 of a two-year period for new sneakers.
With the Nike Adventure Club, however, even the cheapest option will cost consumers $240 per year. At its most expensive, it’ll cost $600 per year.
Looking solely at the numbers, it wouldn’t make much sense at all for folks to sign on to Nike Adventure Club. But consider that kids could get a new pair of sneakers each month, and Nike ostensibly believes that at least some folks might go for it.
That’s perhaps a lesson any business owner can learn. The fact is, consumers and businesses have become conditioned to pay monthly for the services or products they want. They do it with everything from CRM platforms to smartphones. And they seemingly do it without caring too much how it’ll affect their bottom lines.
Is there, then, an opportunity for you, the business owner, to do the same? Perhaps it’s time to consider it. Whether you provide a software solution or sell through the retail channel, there are clearly ways for subscriptions to work. And although you might take a short-term revenue hit by changing your business model, over the long term, there’s clear value in sticking to subscriptions.
After all, if it’s good enough for Apple, Amazon, Google, Microsoft (which has totally transformed its business with subscriptions, mind you), and now Nike, why shouldn’t it work for you?
Source: Nike Has Taken a Page Out of the Tech Industry’s Playbook. Here’s Why You Should, Too | Inc.com