Nike Is the Real World Cup Champion

Nike is benefiting from the World Cup to increase sales--but is that enough of a reason for you to invest?

Jul 4, 2014 at 7:00AM

Sportswear maker Nike (NYSE:NKE) reported a rise in quarterly profit and issued strong guidance, helped by strong sales of its apparel in North America and Europe. The Street was expecting the company to generate $7.34 billion in revenue, yet the company managed to deliver $7.43 billion from continuing operations, representing a 13% increase. 

More importantly, the company guided for a strong first quarter, as it expects revenue to grow at a low-double digit rate, which is quite high for a company with 50 years of history. The strong guidance may be a signal that Nike is seeing strong sales momentum because of the World Cup.

Nike's the clear leader in the sportswear industry, except when it comes to soccer, where competitor Adidas (NASDAQOTH:ADDYY) has supremacy. However, Nike is furiously trying to capture market share in this segment. For example, the company is spending more than ever before on advertising and endorsement deals in this World Cup. Will Nike win the World Cup against other sportswear makers?


Source: Nike.

Adidas is a strong competitor
At first glance, it may seem like Adidas has an advantage over Nike in this World Cup, as the German company is the official sponsor and supplier of the tournament. It also has nine teams and roughly 300 players competing in Brazil using its sportswear and soccer equipment.

The company is confident about its partnerships and sponsorships, as it expects to sell 14 million Brazuca soccer balls, compared to 13 million balls featuring the Jabulani design in 2010. 

Nike's World Cup strategy
However, a closer look actually reveals that Nike may benefit more from this World Cup than Adidas itself, as it sponsors more of the stronger teams and brightest stars left battling in the tournament. 

To begin with, Nike sponsors 10 World Cup teams, including the U.S. and Brazil, the latter of which is the clear favorite to win the World Cup, according to a global survey of over 120 football-loving market analysts polled by Reuters. More importantly, Nike has more individual star players than Adidas, as the Oregon-based company counts with Brazil's Neymar, Portugal's Cristiano Ronaldo, and Spain's Gerard Pique as prime ambassadors. 

In terms of spending, according to the latest quarterly earnings, the company's spending on advertising and endorsement deals hit $876 million, a 36% increase from a year ago. In fiscal 2014, the company spent $3.031 billion on demand creation, exactly $500 million more than in 2010, which is the year of the previous World Cup, held in South Africa.

From now on
Nike's World Cup strategy is already paying off. The company's soccer business generated $2.3 billion in revenue last year, up 21% from a year earlier.

Note that the World Cup momentum may remain strong throughout this entire year. In the most recent earnings call, the company said future orders of overall merchandise between July and November were up 11%. The company appears to be seeing accelerating demand for its products in almost all key markets but Japan. Inventory is also increasing, yet it appears to be concentrated in regions where demand remains strong. 

Adidas, on the other hand, is predicting $2.73 billion in sales from soccer in 2014, up from $2.32 billion a year ago. The German company is expecting 8 million shirt sales and 14 million ball sales. Although Adidas' numbers are higher than Nike's, the difference between both brands in terms of soccer sales has been reduced significantly. 

Final Foolish takeaway
Despite not being the official sponsor, Nike is investing a lot of money in advertising and endorsement deals in this World Cup. However, the strategy appears to be paying off. Its soccer business saw $2.3 billion in revenue last year. More importantly, the company recently posted strong guidance. This is quite an achievement for Nike, which entered the soccer market in 1994. Adidas, on the other hand, has had a clear focus on soccer since its foundation in 1948.

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Victoria Zhang has no position in any stocks mentioned. The Motley Fool recommends Nike. The Motley Fool owns shares of Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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.

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