Athletic shoe retailer Nike (NKE -0.50%) seems to be growing stronger. In a recent proprietary tracking survey, Landes reported that there was an increase in the percentage of young men and women who feel that Nike is a great brand. Moreover, the results of the survey were better for Nike than for Under Armour (UAA 1.29%), a competing sports apparel and footwear retailer.
Nike's growing popularity and customers' love for its products were affirmed when the company recently posted great results that beat the Street's expectations.
Great numbers
Last year, new deals with the NFL and the London Olympics drove Nike's results north. Hence, further growth over last year's quarter was a difficult task. However, Nike posted an 8% increase in its revenue and a 36.5% jump in earnings per share, driven by price increases and cost control initiatives.
Nike experienced great demand for its products in both the Nike brand and the Converse brand. Sales for Nike and Converse grew 7% and 16%, respectively, over last year. All kinds of products such as running, soccer, and basketball items witnessed higher sales.
Nike's secret to its success lies in its drive for innovation. Its new products such as Nike Free and updates to the Flyknit shoes attracted customers. On the other hand, Under Armour was short on product introductions.
Nike's efforts are reflected in its stock price appreciation, which surpassed other footwear retailers:
As evident from the chart, Nike provided a return of 67.3% to its investors, whereas Under Armour provided 56.1%. Foot Locker's (FL 1.20%) stock price moved up slightly, by 4.3%, over the last year.
Nike leads the market in the basketball segment with a market share of 93%. Under Armour has a meager 0.35% share of the same . However, Under Armour is trying its best to snatch away market share which included signing an endorsement contract with Stephen Curry, an NBA guard. This move is expected to increase Under Armour's basketball shoe sales, expanding its market share.
However, Foot Locker has been witnessing difficult days. It is struggling with increases in costs of materials and labor, which hurt its margins. Moreover, it could not meet earnings expectations in its recently reported quarter . However, the company plans to focus on its strategies of remodeling its stores and enhancing its online presence in order to boost earnings. Foot Locker also plans to launch a new retail concept, SIX:02, which will cater to women for their athletic footwear needs. It will be interesting to see how these strategies will affect Nike in the coming years.
The only cause for concern
Though Nike is witnessing revenue growth in all geographical regions, China continues to be a cause of concern. Revenue from the region fell 3% over last year's quarter. However, the company is working on it and plans to reduce inventory in the region.
Also, Nike is working on its products in order to adapt to Chinese customers' tastes and preferences. Changes in products should attract Chinese customers to Nike's stores. Hence, a turnaround is expected in the months to come. Moreover, growth in future orders of 2% reflects that things are turning to Nike's side.
The future looks bright
Future orders is a metric that shows pending orders that will be delivered in the next six months. It is a great measure for estimating a company's sales in the coming months.
The global futures metric was up by 10% for Nike, ahead of analysts' estimates of 7.7%. Future orders for North America were also ahead of expectations at 12%. Hence, the company is pretty optimistic about demand for its products in the coming months.
Bottom line
As reported by the survey, Nike is a popular brand among youngsters. It has a large market share, especially in the basketball segment. Its new products have been able to attract customers. Also, it provided great returns to its investors. Moreover, its efforts in China and the upcoming event in Brazil will further help Nike grow its top line. If you want to invest in this industry, Nike is the best option among its peers.
