The footwear industry is doing well, and that's particularly true when it comes to athletic footwear. Sports are extremely popular around the world, and athletes are always trying to gain an edge. In addition, the rise of the health and wellness trend has placed an added tailwind at the backs of footwear companies.
With this in mind, three stocks in the footwear industry that investors should know about are Nike (NYSE:NKE), Adidas (OTC:ADDYY), and Foot Locker (NYSE:FL). Nike and Adidas dominate the footwear industry worldwide, and Foot Locker is a top retailer in the footwear space.
Nike is arguably the most easily recognized footwear company in the world, and one of the most valuable brands in existence. It ranked No. 22 on Interbrand's 2014 list of best global brands, with a "brand value" of $19 billion. During the first three quarters of the current fiscal year, Nike revenue and diluted EPS were up 13% and 19%, respectively, excluding foreign exchange effects.
Nike owes its success in large part to its history of innovation. Many things have changed in Nike's 40-year existence as a company, but one thing that remains the same is Nike's mission to help athletes perform better. To do this, Nike is constantly evolving. Last year, Nike rolled out the KOBE 9 Elite, its first basketball shoe with Nike's Flyknit technology, which creates a "featherweight, formfitting and virtually seamless upper."
Nike has also had great success building its women's business. In fact, Nike's women's business grew faster than its men's business last year, and is now a $5 billion business.
Another one of Nike's key strategic imperatives is to build its digital presence. It will do this by creating ongoing dialogues with consumers, to directly understand what consumers want. Eventually, Nike wants to grow its NIKE+ community from tens of millions of members, to hundreds of millions. Nike is also aggressively growing its e-commerce business; its online business grew more than 40% in fiscal 2014.
Like Nike, Adidas is a global brand. It ranked No. 59 on Interbrand's 2014 list with a "brand value" of $7.4 billion. One of Adidas' core strategic imperatives is to make athletes better. It does this through the products in its sports performance unit, which focuses on five key categories: football, running, basketball, training, and outdoor.
The company's running business produced 15% sales growth last year. Adidas is fueled by its namesake brand, as well as another of the company's flagship brands, Reebok, which grew sales by 5% last year, and has grown sales for seven consecutive quarters.
In 2014, Adidas grew currency-neutral revenue by 6% and it expects a good 2015. Management is targeting mid-single-digit growth in sales in 2015, along with 7%-10% growth in operating profit.
Among footwear retailers, Foot Locker is a stock to watch. It operates more than 3,400 stores in the United States, Canada, Europe, Australia, and New Zealand. The company aims to be the leading athletically inspired footwear retailer, and, judging from its growth, Foot Locker is well on its way. Its core initiative is customer engagement, which it plans to foster by expanding its position in the kids, women's, and apparel categories.
Foot Locker benefits directly from the strong brands it sells. In fact, almost three-quarters of Foot Locker's merchandise last year came from Nike. This was a huge tailwind for Foot Locker, which grew revenue and earnings per share by 10% and 25%, respectively, last year. And after last quarter's earnings, Foot Locker raised its dividend by 14%. The stock currently has a 1.6% dividend yield.
The Foolish conclusion
Athletes are always trying to gain an extra edge, and consumers are widely embracing more active lifestyles. Nike, Adidas, and Foot Locker are each capitalizing on these trends, and they each have solid plans to keep innovating to drive future growth. Investors should keep watch on these three successful companies.