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3 Great Reasons to Buy Nike

By Royston Yang – Oct 30, 2020 at 8:48AM

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The sports apparel and footwear giant demonstrates that it continues to embody the essential qualities that enable it to achieve long-term growth.

It's not an easy task for a company to remain in pole position. Over time, competitive forces threaten to upstage the market leader even as management makes continuing efforts to remain relevant in an ever-changing business world. Nike (NKE -2.04%), a sports footwear and apparel giant, has managed to remain in the top spot within its industry for many years, and this is by no means an easy feat.

While the world has changed and evolved, Nike has continued to retain the qualities that make it an attractive growth stock. Despite the COVID-19 pandemic ravaging the company and forcing it to temporarily shut its physical outlets during the first half of the year, the company has witnessed resiliency in earnings. For the first quarter of its fiscal year 2021, revenue was down by just 1% year over year, while net income managed to rise by 10% year over year. Nike has even raised its quarterly dividend from $0.22 to $0.245 per share.

Here are three great reasons to include Nike in your investment portfolio.

Man jogging along bridge with headphones

Image source: Getty Images.

Product innovation

In its latest earnings conference call, CEO John Donahoe highlighted product innovation as one of four key areas that the company will focus on. Nike has long been known for its innovatively designed products that not only look attractive but include improvements that enable athletes to improve their running efficiency. From HyperAdapt's auto-lacing feature to the Flyknit, which makes the shoe both lighter and more long-lasting, Nike has harnessed innovative technology to keep the company one step ahead of its competition.

Nike's Air Vapormax has removed foam within the shoes and replaced it with airbags for greater cushioning, while the latest launch of the Air Zoom Tempo Next% training shoe has seen runners logging their best running times as the company has brought its new AlphaFly's innovation to the masses. And the company isn't standing still, either. Nov. 11 has been set as the launch date for its new Kyrie 7 sneaker, targeted at basketball players, that offers better control when moving on the court.

Nike's culture of innovation allows it to constantly serve up new features for its footwear, and it's this attractive feature that endears it to the best athletes in the world.

The digital connection

Nike's continued focus on enhancing its digital strategy has paid off handsomely. In its last quarter, digital sales soared 82% year over year and added around $900 million of sales compared to a year ago. The company's digital sales have already achieved its target of making up 30% of total revenue three years ahead of schedule, and management is confident that the proportion of digital sales can continue to increase even as Nike's stores reopen.

Nike's brand appeal remains strong, as its Nike Training Club app witnessed an all-time high percentage of members using it to work out. For the Nike Running Club app, engagement continues to remain high, as there have been more than one million downloads each month for the app's audio-guided runs. Meanwhile, the company's commerce app has seen triple-digit growth in monthly active users.

These numbers attest to the popularity of Nike's numerous apps and have helped the company to post a strong rebound even though it had to temporarily shut the bulk of its stores.

New retail concepts

By harnessing the power of its digital ecosystem, Nike is also curating new retail concepts to enable the company to deliver an omni-channel shopping experience for its customers. Customers are self-identifying as members when shopping in Nike's physical stores, and the company labels this as a "linked transaction" that leads to further engagement on its variety of apps. Through this offline-to-online connection, Nike is providing increasingly personalized services to its customers through data mining.

CEO Donahoe uses a new store in Guangzhou, China, as an example of a data-powered store concept. Member checkout at this store is significantly higher compared to other Nike stores, showcasing how the company has intertwined the digital and physical aspects to engender stronger loyalty. The company is successfully tapping on the "phygital" concept (physical plus digital) to integrate digital technology with in-store customer experience.

Nike is leading the way in creating a better customer experience within its retail stores, and its ongoing efforts to bridge the physical and digital worlds will ensure that its new retail concept will remain fresh and exciting. All these attributes pave the way for deeper connections with customers that will potentially bring in more revenue over time.

Ahead of the competition

With a portfolio of great products, a popular digital platform that deeply connects with customers, and a management that knows how to adapt and stay relevant, Nike can easily stay way ahead of its competition. Although the pandemic has temporarily slowed the company down, that wasn't sufficient to rock the strong foundation and brand loyalty the company has built up over the decades.

Royston Yang owns shares of Nike. The Motley Fool owns shares of and recommends Nike. The Motley Fool has a disclosure policy.

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