Nike (NYSE:NKE) has performed extremely well for shareholders this year, and although the company only joined the Dow Jones Industrial Average (DJINDICES:^DJI) in September, it looks to end 2013 as one of the index's top-performing members. A share-price return of 48.64% year to date makes the athletic apparel maker the second-best Dow stock, behind only Boeing's 79.18% gain in 2013 and just ahead of American Express' 47.3% rise. The chart below shows how Nike compared to the Dow and S&P 500 since Jan. 1.
As you can see from the chart, Nike clobbered both the Dow and the S&P 500 this year. Nike's share price tracked the indexes fairly closely throughout the year. Similar peaks and valleys can be seen across the time frame, except for two big divergences; the first came in late March after Nike's performance had lagged the indexes for a few weeks, then in September Nike pulled away from the market's slow rise. So what happened at those times? Let's take a look.
The first big jump came on March 22 after the company reported earnings. As my colleague Jeremy Bowman said at the time, Nike was playing above the rim that day -- shares rose more than 12% at one point during trading. The company reported earnings-per-share growth of 20%, revenue growth of 9% during the quarter, and a big gain after selling its Cole Haan brand for $203 million. Additionally, the company reported strong growth in North America and Europe, while China and other parts of Asia struggled. This was largely seen as good news because the U.S. is still Nike's largest market and primary source of profit.
The move in September can be contributed to two things. First, on Sept. 10, the Dow Jones announced that it had chosen Nike, Goldman Sachs, and Visa to replace Bank of America, Alcoa, and Hewlett-Packard among the index's 30 members. This announcement affected the stock price because it meant that some funds now had to buy Nike shares to meet their guidelines. For example, your average Dow Jones index fund is required to hold all 30 of the stocks on the index. Being added to the Dow instantly increased the demand for Nike shares and thus the stock price rose.
Nike also delivered a strong fiscal first quarter earnings release on Sept. 26, reporting that it increased revenue by 8% during the period and earnings per share by 54%. The results were a sign that the competition wasn't hurting business. The stock jumped 4.7% after the earnings announcement and moved above $70 per share, where it remains today.
Looking down the road, Nike can be expected to continue to perform well and produce strong returns for shareholders, but perhaps not as strong as what we saw in 2013. The move to the Dow was a big win for the company and shareholders, but that sort of thing doesn't happen every year.
Over the past few years many have wondered what the likes of Under Armour and lululemon athletica may do to Nike and its growth. However, we have yet to see any meaningful market-share erosion from the competition into Nike's core business. I personally believe the athletic apparel industry has enough space for a number of different players. Nike is still clearly the top dog, which I expect to remain true for at least the next few years.
Fool contributor Matt Thalman owns shares of Bank of America, Under Armour, and Lululemon Athletica. Check back Monday through Friday as Matt explains what causing the big market movers of the day, and every Saturday for a weekly recap. Follow Matt on Twitter @mthalman5513.
The Motley Fool recommends Bank of America, Goldman Sachs, Lululemon Athletica, Nike, Under Armour, and Visa. The Motley Fool owns shares of Bank of America, Nike, Under Armour, and Visa. 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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