Stock analysis NIKE (NKE)

 

NIKE is a global leader in design, product development, marketing and sales of athletic shoes, sportswear, athletic equipment, accessories and services. Portfolio brands include NIKE, Jordan Brand, Hurley and Converse. The NIKE brand focuses on sneakers, sportswear, exercise equipment, accessories and services for a variety of sports. Jordan Brand focuses on casual shoes and apparel as well as athletic sportswear, and also sells accessories featuring the Jumpman mark. The Hurley brand sells action sports and youthful outfits and accessories. The Converse brand designs, distributes and sells casual sneakers sneakers, apparel and accessories.

NIKE sells products worldwide through our owned retail stores, digital platforms, and private distributors. NIKE's goal is to realize shareholder value with a highly productive global portfolio of branded footwear, clothing, equipment and accessories businesses. Our strategy is to develop innovative "must-have" products and solidify customer relationships through digital platforms and retail stores to achieve long-term sales growth. NIKE's growth and business are expected to increase as our transition to a leading digital company accelerates. Despite being hampered by COVID-19 in our business growth in the short term, we are committed to implementing this strategy.

Its long-term financial goals are:

1) High digital sole sales growth

2) 50% increase in overall sales margin

3) Low debt of operating and administrative expenses

4) EPS growth rate of 15~17%

5) 30~33% ROI

Fiscal 2020 Overview

Its sales fell 4% from last year's sales to $37.4 billion, while sales for the nine months excluding the last quarter of the corona outbreak were growing 7%, but the 2020 Q2 sales fell 38% compared to the same period last year, offsetting the increase. Pre-tax profit in 2020 decreased by 40% compared to last year as operating and administrative expenses increased due to decreased sales due to COVID-19. Increasing operating costs have resulted in high wage costs due to continued investment in digital sales and increased long-term debt of high interest. Diluted earnings per share declined 2% due to the company's share buyback.

This is its sales distribution graph. The company's regional sales share is North America 41%, APLA 14%, Greater China 19% and EMEA 26%. APLA refers to Asia Pacific countries including Australia and Latin America, while EMEA refers to Europe, Middle East and Africa. The share of sales by distribution channel is 65% of wholesale sales and 35% of sales using the NIKE store. In terms of sales by item, sneakers accounted for 66%, with clothing accounting for 31% and equipment and accessories accounting for 3%.

This is the sales increase/decrease table by region. Compared to last year, North America sales decreased 9%, EMEA sales decreased 5%, and APLA sales decreased 4%, but Greater China sales increased 8%. Greater China includes China, Taiwan and Hong Kong.

As a result of COVID-19, fewer products were paid to wholesalers and more stores closed, resulting in a 9% decline in sales compared to last year. Revenue declines occurred in all categories, but the biggest decline occurred in Running and Training. The sales of NIKE directly-managed stores increased by 2%, with digital commerce sales growing by 45%, but overall sales decreased as wholesale and retail stores were temporarily closed.

Compared to last year, EBIT declined 26% in 2020 due to decreased sales, reduced gross margins, and high sales and administrative costs. Operating expenses have increased due to high interest and administrative expenses. The decline in demand has led to high digital brand marketing costs.

EMEA sales also decreased by 1% compared to last year due to fewer product payments to wholesalers and an increase in closed stores due to the impact of COVID-19.

 

Compared to last year, EBIT declined 23% in 2020 due to reduced sales, reduced gross margins, and high sales and administrative costs. Operating expenses have increased due to high interest and administrative expenses. Demand-generating costs have been reduced due to reduced brand promotion costs as stores close due to COVID-19.

Greater China sales increased 8% compared to other regions. Sales increased in all categories, mainly with Jordan Brand and Sportswear. Sales of NIKE directly operated stores increased by about 20%, and digital commerce sales increased by 49%, leading to a rise in sales.

Compared to last year, EBIT increased by 5% due to strong sales growth. Operating expenses have increased as we invested heavily in operating NIKE stores. Demand creation costs have risen due to digital brand marketing and increased advertising in wholesale and retail stores.

APLA sales increased by 1%, not applying exchange rates. Sales growth occurred mainly in Korea and Latin America. Sales increased in several categories of Jordan Brand. NIKE store sales increased by 12%, while digital commerce sales grew rapidly to 62%, driving up sales. Sneaker sales in 2020 rose modestly for Jordan Brand and NIKE Basketball, but decreased sales in other categories.

Compared to last year, EBIT declined 11% as sales declined and gross margin declined. Operating expenses have increased due to high interest and administrative expenses.

Converse brand sales declined 1% compared to last year. Sales declined primarily in North America and Europe. As digital commerce sales grew rapidly, sales ordered directly from customers increased by 11%.

Compared to last year, EBIT fell 2% as sales declined and gross margin declined. Operating expenses were at the same level as last year, and demand-generating expenses fell due to lower advertising and marketing expenses.

The figure on the left is NIKE, and the figure on the right is the industry average. Its ROE remains high at about 30% or more, about 10% P above the industry average. The average 5-year EPS growth rate is -2.92%, which is far from our long-term goal of 15-17%. The impact of COVID-19 appears to have dropped significantly this year as net profit declined. The Quick Ratio is 1.59 and the short-term debt repayment ability is sound. LT Debt to Equity is 116.77%, and the debt payment ability is also moderate. Asset turnover is 1.36, which is a high turnover. Dividends are paid quarterly and have been growing steadily for over 20 years. Although it was hit hard by COVID-19 this year, it has maintained its dividend.

 

NIKE is a global leader in the industry with a strong brand recognition and a popular brand portfolio built over a long history. We succeeded in converting to e-commerce and laid the foundation for rapid growth. Although the industry has been directly hit by COVID-19, the market share of the headquarters is unlikely to change significantly. It is a company worth looking forward to seeing if it achieves the aforementioned long-term goals.