From its humble beginnings when co-founder Phil Knight was selling track shoes out of the trunk of his car, Nike (NKE 0.97%) has come a long way to become the behemoth athletic brand that it is today. The company is a global leader in the sports footwear and apparel industry, with fiscal year 2019 sales in excess of $39 billion. But with the complete stoppage of professional sports in most of the world, Nike has had to find ways to succeed and stay relevant in the absence of some of its biggest marketing opportunities.
After reaching a low this year of $62.80 on March 23rd, the stock has rallied more than 59% since then to make up most of its losses due to the coronavirus outbreak. Much of this has to do with retail channels slowly reopening all over the world. On May 14th, Nike announced that 100% of its company-owned stores in Greater China were open. In the quarter ended February 29th, Greater China sales fell 4% versus the prior year on a currency-neutral basis. This is after 22 consecutive quarters of double-digit growth. Investors are clearly happy that the company is back in business in this extremely important region.
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Just Do It
Nike is one of the best marketers in the world. The company associates itself and its customers with a powerful culture of winning and overcoming adversity, things that are of the utmost importance today. Over the last three fiscal years, Nike has spent almost $11 billion on something it calls demand creation expense. This includes advertising and branding costs, as well as money spent on endorsement contracts. The key to Nike's marketing strategy is partnering with elite professional athletes to help it spread the message of never backing down from any challenge, be it in life or sports.
The company has done a fantastic job at this, as Forbes named it the most valuable sports business brand in 2019. What separates Nike from most other consumer goods companies is that it is an identity brand. Much like Apple and Starbucks, there is a direct connection between an individual's distinctiveness and the products that they purchase. Buying Nike shoes, shirts, or equipment signals to other people that you are a fashionable person who cares deeply about your health and physical fitness. It also feels wonderful knowing that your favorite athletes have given their stamp of approval.
Victory lap
One of the traits of a successful company and brand is its presence in the mind of consumers. Nike's unrivaled strength in creativity and design, coupled with its core competency in delivering inspirational messaging, drives an emotional connection with consumers and athletes all over the world. The company's Triple Double strategy, through its Consumer Direct Offense initiative, is focused on innovation, speed to market, and deepening connections with customers. Through fiscal 2023, Nike aims to achieve high single-digit revenue growth and mid-teens EPS growth, numbers that should make the stock a part of your portfolio.
Although the company was executing against this strategy in fiscal 2019, the global pandemic will undoubtedly have a temporary negative impact. As professional sports leagues in the U.S. mull plans to start playing games again, a rejuvenated passion and excitement from fans will emerge. Just as the world's obsession for sport shows its resiliency, Nike's popular products and remarkable brand will still continue making us feel like champions many years from now.
