Nike Jumps on a New Track

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

China's enormous emerging economy presents an immense opportunity for global players, and Nike (NYSE: NKE  ) is among the names making a sprint into this market. The athletic footwear and apparel giant has expansion plans in the promising Asian market to keep its top line running strong.

A look at the numbers
In the first quarter of 2011, gross margin declined by 2.7% to 44.3% because of an increase in the cost of raw materials. But net income increased by 15% to $645 million on higher demand, especially from emerging economies. The company expects 27% growth in future demand from the Chinese market, compared with 16% globally. Its inventory level stood at $3.1 billion, up by 41% compared with the same period last year.

Destination China
Nike has a presence practically all over the globe, and that has ensured healthy top-line growth amid sluggish and uncertain economies in developed markets. A major part of its revenue growth was attributable to developing economies, especially China.

China has become one of Nike's largest markets, and the company is looking to ramp up investment and double revenue in the country to $4 billion by 2015. Nike currently operates through 7,500 stores in China and is planning to open new ones and increase production.

An uphill task
The company is trying to find ways to make the Chinese take to its products the way, for example, Americans have, and it's had to sweat it out against brands such as Gap (NYSE: GPS  ) . With decreasing American sales, Gap, too, will become more reliant on the Chinese market. Coach (NYSE: COH  ) , too, is concentrating on the Chinese market to boost global sales. The increase in purchasing power of the Chinese people and their growing affinity for international brands means that Coach is eyeing annual sales of $500 million from China within the next three years.

Nike faces another challenge in China. According to Chief Financial Officer and Vice President Don Blair, "China has one of the biggest populations who are tuned in to sports, but they aren't yet participants." To penetrate deeper into the market, Nike will have to expand its reach, popularize recreational sports like running and snowboarding, and focus on local brand ambassadors such as Chinese Olympic track-and-field star Liu Xiang and Chinese tennis player Li Na. One step toward that goal has been to open its first action-sports outlet in Shanghai, which will sell skateboarding and snowboarding gear.

Foolish takeaway
Nike, with its wide customer base and new investments in developing economies, is expected to keep its growth momentum on track. With plans to enter deep into China and get more people familiar with the brand, the management has set high goals for itself, goals that I think will bear fruit. The stock is worth watching.

To stay updated on Nike's China journey, add the stock to My Watchlist.

Fool contributor Abantika Chatterjee owns no shares of any of the companies mentioned in this article. The Motley Fool owns shares of Coach and Gap. Motley Fool newsletter services have recommended buying shares of Nike and Coach and creating a diagonal call position in Nike. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1595541, ~/Articles/ArticleHandler.aspx, 10/28/2016 6:43:43 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 9 hours ago Sponsored by:
DOW 18,169.68 -29.65 -0.16%
S&P 500 2,133.04 -6.39 -0.30%
NASD 5,215.97 -34.29 -0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/27/2016 4:04 PM
COH $35.52 Down -0.20 -0.56%
Coach CAPS Rating: ****
GPS $26.62 Down -0.38 -1.41%
Gap CAPS Rating: **
NKE $51.89 Down -0.08 -0.15%
Nike CAPS Rating: *****