Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Nike's Future Growth Does Not Hinge on the World Cup

By Chris Brantley - Mar 25, 2014 at 10:41AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Nike and Adidas have made big pushes to grow their market share during this year's World Cup, but Nike could lose the battle and still win the war.

Don't panic if earnings for Nike ( NKE 0.14% ) come up a little short this quarter. It's invested a lot into getting ready for the 2014 World Cup -- the world's most-watched sporting competition.

Yes, the speculators, the short-term guys, may jump ship if Nike's margins decrease, but that's just a long-term investor's opportunity to jump in.

Nike's taking Adidas' home turf
Nike has been steadily gaining ground on top rival Adidas ( ADDYY -2.38% ), even on Adidas' home turf. Citi Research (of Citigroup) just reported bad news for Adidas. Out of 185 European retailers, 56% said Nike had gained market share.

In its fiscal 2013 (ending Dec. 31) earnings release, Adidas reported that sales declined 7% in Western Europe (he company is based in Germany). However, the drop primarily resulted from its performance in the markets of the United Kingdom, Spain, and Italy. Nike's second-quarter sales and orders, announced in December, showed increases of 18% and 26%, respectively.

Battling in Brazil 
The last official data released by Euromonitor showed that Adidas had 13.2% of the Western Europe market, while Nike had 12.4% of that market. Across the globe, Nike leads with 14.6% market share and Adidas holds 11.4% market share.

However, Adidas expects that 2014 will be a banner year, primarily because of the World Cup, forecasting soccer sales of $2 billion Euros. Currently, it has somewhat of a hold on the soccer world as the part-owner (9%) of German club Bayern Munich. Adidas also designed the official World Cup soccer kit for FIFA, which organizes soccer's major international tournaments including the World Cup.

On the other hand, Nike only entered the soccer market 20 years ago (in 1994), but it has partnered with several big-name soccer programs that include Manchester United.

Booting up for the World Cup
Adidas and Nike recently released new soccer boots, and Nike claims "football will never be the same again." Nike introduced its boot, Magista, at a news conference in Barcelona on March 6. Hours earlier, Adidas tried to upstage Nike by displaying its pending creation -- a soccer boot and sock hybrid called Primeknit FS -- on Twitter.

Liverpool's Luis Suarez debuted a prior Adidas creation, the Samba Primeknit, on March 16 in a match against Manchester United. According to Adidas, it is the first-ever knitted football cleat. Suarez will also show off the shoe in this summer's World Cup.

Barcelona's Andres Iniesta (Spain), Bayern Munich forward Mario Gotze (Germany), PSG's Thiago Silva (Brazil), Turkey's Arda Turan, and Chelsea's David Luiz (Brazil) will showcase the Magista. The boot will become available for pre-order in April and it will go on sale in May.

Non-soccer shoes drive Nike's sales in Western Europe
Adidas vowed to redouble its marketing efforts in Europe after its sales dropped. In contrast, Nike reported a 9% revenue increase (currency-neutral) in the second quarter of 2014, with footwear sales jumping 27% in Western Europe. 

Despite all the focus on futuristic soccer cleats and the World Cup, Nike's 2013 Western European growth resulted from sales of running and basketball shoes, as well as sportswear.  

A Fool's focus
Nike achieved a nice win by gaining ground on Adidas' home turf. However, its long-term growth does not reside in the developed markets of Western Europe. Rather it will come from the emerging markets, including China, where Nike increased its sales 5% in the second quarter. Nike will also focus on Brazil as the nation will host both the 2014 World Cup and the 2016 Summer Olympics.

My advice: keep a close eye on revenues and profitability in these markets as indicators of Nike's future prospects of gaining global market share and pulling away from its chief rival, Adidas. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Citigroup Inc. Stock Quote
Citigroup Inc.
C
$62.76 (-1.65%) $-1.05
NIKE, Inc. Stock Quote
NIKE, Inc.
NKE
$170.24 (0.14%) $0.24
adidas AG Stock Quote
adidas AG
ADDYY
$141.72 (-2.38%) $-3.46
Twitter, Inc. Stock Quote
Twitter, Inc.
TWTR
$42.07 (-1.36%) $0.58

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
624%
 
S&P 500 Returns
140%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/06/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.