ONON - Nike: Trust The Brand Equity
2024-04-30 05:55:07 ET
Summary
- Nike boasts robust brand equity and holds a dominant position in an industry that is poised for sustained growth.
- The new CEO is prioritizing innovation through a multiyear cycle.
- Early indications suggest that the new management is preparing the company for a new phase of solid growth.
Investment thesis
Nike (NKE) boasts robust brand equity and holds a dominant position in an industry that is poised for sustained growth, with more than double the sales of its closest competitor. The company is facing several headwinds, some of which are temporary and others that will take longer to address as it reassesses its business model and growth algorithm looking ahead. Yet, all the discussion around Nike boils down to whether the company can sustain its brand equity, a key competitive advantage that has historically been built upon innovation, which, in turn, creates the foundation of the new strategy encompassing a multiyear innovation cycle. The company's history is marked by periods of innovation cycles, with growth first accelerating and then moderating over time. While past success does not guarantee future results, there seems to be indications that the new management is preparing the company for a new phase of growth; scheduling an Investor Day later this year (the first time in a while) to unveil its next five-year plan, along with generating excitement in Paris ahead of the Olympics by showcasing a glimpse of its innovation pipeline, may suggest this notion. With the stock trading near its 52-week lows, and with modest consensus expectations for FY24E (when margins are expected to bottom) and FY25E (with top-line growing low-single-digit and with EPS already revised down by ~-20% since the start of 2023), for those with patience and a belief that the company is entering a new cycle of growth, I believe now could be an opportune moment to consider looking at the name, and possibly be rewarded in the future.
Nike faces near-term headwinds and increased competition
Nike is the largest seller of athletic footwear (65% of sales) and apparel (27% of sales) globally. The company sells its products through 1,000+ owned stores (20% of sales), followed by its digital platform NIKE Brand Digital (24% of sales), and wholesale customers (56% of sales). Nike's operations span nearly all countries worldwide, with North America ((NA)) accounting for 42% of sales, followed by Europe, Middle East and Africa (EMEA) at 26%, China at 14%, and Asia/Latin America at 13%....
Nike: Trust The Brand Equity