Have you been in Manhattan since last Friday? If so, and if you just so happened to be on W 34th Street between 7th and 8th Avenue, then there's a good chance that you noticed an 18-foot shoe box featuring His Airness. For those too young to know what this means, or if you're not a basketball fan at any level, it pertains to Michael Jordan.
Nike (NYSE:NKE) is about to make a big move with its Jordan Brand. It's partnering with Footaction, owned by Foot Locker (NYSE:FL), to create Flight 23 retail stores nationwide and the first of these stores will be launched in New York City.
If you're not familiar with New York City geography, the first Flight 23 store will be located just one block from Madison Square Garden, home to the New York Knicks. This is somewhat ironic considering that Michael Jordan consistently destroyed the championship dreams of the New York Knicks during the Patrick Ewing era. The only thing Knicks fans can hang their hat on is John Starks' dunk on Michael Jordan in 1993, even though Jordan wasn't covering him and Jordan wasn't really dunked on, he was just in the vicinity.
Regardless of how you feel about this event or the Knicks vs. Chicago Bulls rivalry, Michael Jordan's brand presence in the heart of New York City should act as a big catalyst. This appears to be yet another strategic move by Nike, which is necessary if Nike wants to stay ahead of Under Armour (NYSE:UAA).
Prior to going more in-depth on Nike's new Flight 23 launch, first consider Under Armour's growing appeal. The revenue chart below covers a broad time-frame of 10 years in order to show Under Armour's consistent top-line growth:
Don't get the wrong idea. Nike's performance has been excellent, especially for a mature company. It's just that Under Armour is still in its early stages of growth, and since the brand has been received so well by consumers, there's no reason to think this growth will suddenly come to a halt.
Under Armour has become more of a threat because it will sponsor three teams for the 2014 Olympics: the U.S. Speedskating Team, the U.S. Bobsled & Skeleton Team, and the Canadian Snowboard Team. This should increase Under Armour's brand exposure on a global level, adding more growth potential.
Also ... look at that chart above and consider that Under Armour spends 11% of its annual revenue on marketing. If Under Armour's top line continues to grow, then this 11% of revenue will continue to become larger and Under Armour will have even more marketing power and brand recognition. It's a positive cycle for Under Armour.
That's why this surprise move by Nike is important. The company's plan to open Flight 23 retail stores across the country could reestablish Nike as the cooler brand with young consumers who seek street-inspired athletic styles.
Now let's take a look at some more details about Flight 23.
Nike is being very secretive about its plans for Flight 23. This comes as no surprise since Nike doesn't reveal sales for Jordan Brands in its financial statements. According to SportsOneSource analyst Matt Powell, Nike's Jordan Brand does approximately $2.5 billion in annual footwear sales domestically, which would put it in the No. 2 position for market share. The No. 1 position belongs to ... Nike. It's nice when you own the No. 1 and No. 2 positions in a product category.
However, Jordan Brand sells both footwear and apparel. While increased footwear sales are the company's primary goal, if you look at the bigger picture, it's more about brand recognition with young consumers. Many of these consumers see themselves as either Team Under Armour or Team Nike. Both companies are constantly making moves to pull the tug-of-war rope back in their own direction.
What we do know is that Nike plans on pushing Flight 23 in a big way, and that the brand will also enter into the running category.
The bottom line
Every time one of these companies makes a splash, the other one strikes back. Nike is a much larger company with a significant lead on a global basis. Under Armour is growing at a much faster pace and its potential has increased thanks to its sponsorship of three teams in the upcoming Winter Olympics.
From an investing standpoint, this simply comes down to growth vs. value. If you want growth, and more stock appreciation potential, consider Under Armour. The one risk here is valuation, as Under Armour trades at 48 times forward earnings. As a growth company, Under Armour doesn't pay a dividend. Nike trades at a much safer 22 times forward earnings, and it currently offers a dividend yield of 1.20%. Please conduct your own research prior to investing.