Wednesday 16 August 2017

Now could be perfect time to 'Just Do It' and invest in Nike shares

 

Eliud Kipchoge, the multiple marathon winner and Olympic gold medallist
Eliud Kipchoge, the multiple marathon winner and Olympic gold medallist

Aidan Donnelly

Let's set the scene: it is 5.45am on Saturday May 6, 2017, and a crowd of around 700 spectators are gathering at the Autodromo Nazionale Monza outside Milan, Italy. This venue is used to housing many times that number of spectators, who go there to be thrilled by the loud noise and speed of Formula 1 race cars. But these fans are different - and so is the event. While still a race against time, in this case it is all about human power rather than horsepower.

Three elite runners, including Eliud Kipchoge, the multiple marathon winner and Olympic gold medallist, have been chosen for what the global athletic apparel and footwear company, Nike, has christened the Breaking2 project - an attempt to break the two-hour time mark for 26.2 miles of a marathon race.

Despite the hype, the shoes (Nike had developed a new shoe for the occasion), the millions of dollars of investment, the rigorous application of the latest scientific thinking and biomechanical analysis, and the mammoth effort of Kipchoge, the much-publicised attempt came up agonisingly short - a mere 25 seconds outside the target.

While some may argue that developing a new shoe for this race was a bit of a gimmick on the part of Nike, it does provide evidence of its continued effort to build on its strong position across athletic footwear (which accounted for 65pc of its around $32bn ($28.4bn) in sales in 2016), apparel and equipment markets globally. By leveraging its winning combination of consumer-focused innovation and unparalleled marketing prowess (who doesn't know the 'swoosh'?), the company has established a long track record of growth.

When it comes to breadth of offering, through its brand portfolio consisting of Nike, Brand Jordan, Converse and Hurley, it commands a dominant global share across many key categories that include running, basketball, soccer, men's and women's training, action sports, sportswear and golf apparel.

That's not to say that they have been successful in all their developments. Last year, Nike announced its decision to exit the golf equipment market even though there were still seven years to run on its $250m 10-year deal with Rory McIlroy. (They remain his clothing sponsor under a recently extended deal.)

While the athletic market is becoming more competitive, with stronger brand momentum from Under Armour in footwear as well as Adidas, Puma and other brands in casual athletic, Nike's product pipeline remains robust, with new lifestyle and performance products set to be launched. The resurgence of Adidas as a power brand globally in recent years has seen market share losses for Nike, particularly in its home market, but even now the gap remains wide.

With the total industry continuing to grow at an estimated mid- to high-single-digit percentage over the next few years, Nike and its rivals can continue to grow on the back of strong global demand. With just over half of its revenue derived from outside the US, Nike appears well positioned to sustain its growth rate across key markets in Western Europe, Greater China, Central and Eastern Europe, and emerging markets.

The changing face of retail represents a challenge for all consumer-product companies but Nike is tackling this with a growing 'direct-to-consumer' (DTC) offering. Nike's DTC business reached 24pc of global revenue in 2016.

The share price of Nike has lagged in recent years and therefore presents an opportunity for investors. After a period that was more 'woosh' than 'swoosh', the question is: will investors "Just Do It"?

Aidan Donnelly is head of equities in Davy Private Clients. Disclosures at www.davy.ie/AidanDonnelly

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