) mission is to 'bring inspiration and innovation to every athlete'
and the company has been very successful in doing that over the
years. However, the relatively new Under Armour (
) has also had success in this market and is starting to challenge
NKE is some key areas of its business.
Yet, while UA has definitely surged in recent years, NKE still has
a commanding lead in the market. However, many are starting to
wonder if Nike's dominance of the space is meant to last, or if the
upstart can one day unseat Nike.
And if Nike will retain its huge market, many are wondering where
will UA make its inroads and can it possibly challenge NKE in one
of its most dominant markets, basketball? Additionally, how big is
NKE's lead in sales and revenue? Which company is more popular
across the globe with the masses?
We will need to examine each one of the companies carefully to
answer the aforementioned questions and concerns, in addition to
drawing a conclusion over which stock is better for investors.
NKE has become a master at design, development, marketing, and
retail of sportswear and fashion wear, including apparel, footwear,
equipment, accessories, and services. It manufactures and sells a
different host of products for varying sports and purposes. Almost
everyone has seen NKE's swoosh logo, and there is no doubt NKE has
etched itself in the world of retail.
NKE has maintained control over most of the basketball market,
which is arguably the most popular sport in the US. Almost 99% of
all basketball players wear NKE sneakers, and many of them are
sponsored for huge sums of money by Nike, which markets and sells
its products and services through a fun and interactive online
store, but also through many brick-and-mortar locations as well.
NKE manufactures and markets many basketball shoes to the fans and
shoe aficionados who are crazy for the glittery leather design and
logo. Some shoes in the past have been sold out immediately upon
their release, and some shoes have even become collectibles, like
the renowned Nike Air Yeezy 2 Red Octobers, which currently go for
a wild price tag of up to $6000 (that's almost eight times more
than what a Louis Vuitton loafer would go for).
It is also worthwhile to note that Nike distributes its products
not only through its stores, but also through department stores,
such as Macy's, Finish Line, and many others, while Under Armour
does not. Of course, that has to do with the size of the two
companies, and it is no surprise considering how Nike's market cap
stands at $68.54 billion, while Under Armour's market cap is about
$14.80 billion. However, we should mention that investors do not
really care about the size of a brand but rather its success,
popularity, sales, revenue, and profit.
Germany's national football team was the winner at the FIFA World
Cup 2014, leaving many teams in its dust. Another question though,
is who won the sponsorship war this time? The answer is Nike.
Nike outfitted 10 teams during the tournament, while German
multinational Adidas AG (not traded publicly in the US, but rather
on XETRA, one of Germany's stock exchanges) only outfitted 9 teams.
It was however, an Adidas World Cup final, as Germany faced off
against Argentina, and won towards the end of the match, though
Goetze's boots were NKE, which was contractually not legal.
NKE's first goal in the history of World Cups was in 1982, before
that, Adidas had reigned supreme when it came to the FIFA World Cup
(commonly referred to Soccer World Cup in US). In other words, NKE
has certainly bridged the gap in football, but is not king, as FIFA
and Adidas signed a deal valid until 2030, worth about $70 million
per four year cycle, which will allow Adidas to design all World
Cup memorabilia and the tournament's football.
Under Armour's Prospects
Under Armour (
) is trying its hardest to dethrone long reigning sportswear king,
Nike. Many people see Under Armour strictly as an American brand,
and rightfully so. Having lived in different regions around the
world, I can safely say that Nike has the upper hand by a very long
shot when it comes to international markets, only facing resilient
opposition from Adidas.
Very recently, UA has been planning to acquire larger slices of the
basketball footwear market, by trying to pull one of the NBA's
brightest stars, Kevin Durant, from Nike's grasp. UA is looking to
attract hype as the company offers around $285 million over a span
of 10 years to Durant, in hopes of swaying him to their side.
The deal would reportedly include UA shares, and other benefits,
including a community center built in Durant's mother's name.
According to the deal offer though, NKE has the option to match
UA's proposal, so this deal isn't set in stone yet. Acquisition and
sponsorship of a player of such high caliber would no doubt put NKE
in a precarious position, as the sportswear behemoth may suffer a
dent in its reputation, seen by many basketball fans as unbeatable
for a very long time.
An important aspect to think about is how UA's prices compare to
NKE's expensive price tags. Wondering through a NKE store, it isn't
hard to stumble on a pair of $150 shoes, however UA is known for
having competitive and cheaper prices, and that is definitely an
appealing factor for any youth to think about before considering a
Is a pair of NKE running shoes really worth $150? Or is it just
brand marketing and overpriced? I tend to lean towards the latter;
however most of my sportswear purchases have been from NKE. It just
seems that NKE has that everlasting brand design and look, that
seems to appeal to everyone, regardless of age, or gender.
Both stocks, UA, and NKE, currently maintain a Zacks Rank #3
(Hold), however, NKE seems to be having a better rating according
to Deutsche Bank's analysts, most possibly due to its World Cup
sponsorships and sales, which will arguably be announced soon in
NKE's conference call on September 25
NKE has managed to effectively come out on top of its EPS estimates
for a very long time now, and so has UA. We will see how things
shape up for these two giants next quarter.
Nike has mustered $7,425 million in sales, and a gross profit of
$3,385 million, with a net income of +$691 million. NKE had a
diluted net EPS of $0.76/share, and has a forward P/E ratio of
23.23. On the other hand, UA made sales worth $609.65 million,
however the company's net income was paltry at best, as a reported
+$17.69 million was the total net income, which was still a nice
improvement from their previous quarter. UA's gross profit for last
quarter was $299.95 million. UA had a diluted net EPS of
$0.08/share, and has a forward P/E ratio of 73.94.
Analysts have revised and lowered their EPS estimates for the
current quarter, from $0.93/share to $0.89/share about 60 days ago
for NKE, and it is the same negative trend for UA, for which
analysts revised and lowered their estimates for the current
quarter, from $0.42/share to $0.40/share about 30 days ago.
UA just met earnings estimates last quarter while NKE had 2.25%
negative EPS surprise. It is important to note that UA surprised by
50% for the quarter ending on 3/2014, whilst NKE only surprised by
4.11% on its quarter ending on 2/2014.
From the financial results and analysis, we can see how NKE remains
the dominant brand for sportswear, at least on the national and
international level. NKE has continued to pursue its mission of
innovating and inspiring, and there is no doubt that it will
continue to do so for a long time.
UA, on the other end of the spectrum, remains more of a mystery,
will Durant accept their multi-million dollar offer, or will he
stick with NKE? It seems like UA is having a hard time competing
with NKE, but time will tell whether we will see a change or not.
Still, UA remains a very attractive stock for long-term investors,
especially since it has the potential to surprise, while NKE is a
much bigger brand with $27 billion in revenue, compared to UA's
tiny $3 billion revenue. NKE, on the other hand, isn't likely to
just give up control of its key markets without a fight, and could
be planning attacks on UA's key markets too.
It is also worth noting that there are better sports/shoe wear
investments out there, like for example, Skechers (
), which currently maintains a Zacks Rank #1 (Strong Buy). In the
mean time, investors should hold on to their NKE and UA stocks and
look out for earning revisions and see if it is wise to dump the
stocks before taking a likely penalty ahead of next earnings
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