Nike Inc (NYSE:NKE) shares were catching air once again after last Thursday's earnings report. The sneaker king's stock jumped 4%, hitting an all-time high as earnings topped estimates for the 11th quarter in a row.
Revenue was up 7% to $7.5 billion, but would have jumped 13% adjusting for currency exchange rates. Earnings per share, meanwhile, soared 19% to $0.89, topping expectations at $0.84 a share. Performance was solid across the board as Nike brand revenue climbed 11% and Converse sales jumped 33%. Gross margin also improved 140 basis points to 45.9% due to a change in sales mix.
At a time when other mature consumer goods companies like Coca-Cola and Procter & Gamble are struggling to find growth avenues, Nike's consistently strong results are testament to the strength of the sports apparel industry and the company's ability to maintain its leadership of that sector. In the last five years, the stock is up 176%, more than double the 81% return of the S&P 500 in that time.
Notably, Nike isn't the only sportswear stock that has shined in that time. Under Armour (NYSE:UAA), the new kid on the athletic apparel block, has skyrocketed 964% in the same period. The chart below shows the performance of the two companies against the S&P 500.
It may be surprising that Under Armour's towering growth hasn't come at the expense of Nike's performance, but there are some trends within the industry that have allowed both companies to deliver. Let's take a closer look at some of the trends.
The newest buzzword in fashion may be a terrible portmanteau, but it is minting money for companies like Nike, Under Armour, and lululemon athletica (NASDAQ:LULU), whose stock has faced headwinds in recent years, but deserves just as much credit as the other two for growing this niche.
Fashion trends have changed, and sporty clothing that was once seen as acceptable only for working out has become a staple of casualwear. A trend that arguably began with Lululemon's form-fitting $98 yoga pants has recently spread to high-end designers like Alexander Wang.
As further evidence that times are-a-changin, sales of jeans, as American of a fashion staple as any, fell 6% in 2013, sending shudders through other corners of the fashion industry. Meanwhile, sales of yoga pants and other "active wear" increased 7% that year to over $33 billion. The growing interest of women in such clothes has been a boost for Nike which has stepped up its focus on the fairer sex and begun opening women's only stores. Even Under Armour, which touts its obsession with high-performance gear, has softened its image, aiming for customers who may be more interested in shopping for clothes to wear outside the gym.
Though wearable technology may be more associated in the consumer's mind with Google Glass or the Apple Watch, Nike and Under Armour have also had their hand in pioneering the next frontier in technology. Nike, which created the Fuel band several years ago, abandoned the project recently to team up on wearables with Apple.
The partnership is still in its infancy, and Nike has been mostly mum about it. Nike CEO Mark Parker has said that the two companies are developing a new product that will have "greater integration with existing gadgets," and will be more "stealth." We'll likely know more about it once the Apple Watch hits shelves.
Under Armour, meanwhile, seems to be staking its future more so on wearables with a new biometric compression shirt that measures performance metrics, including heart rate, metabolism, lung capacity, and body position.
Much of the demand in wearable tech is likely to be related to athletics, and the market for it is projected to reach over $70 billion within ten years. Considering their positions in sportswear and initatives in wearables, Nike and Under Armour are likely own a big chunk of that market.
Add to that position, increasing brand power and a huge international opportunity and both of these stocks should continue to outperform in the coming years.