In a move to focus on its fastest growing brands and enhance
shareholders' return,
Nike, Inc.
(
NKE
) intends to divest its two wholly-owned brands, Umbro and Cole
Haan. The company revealed that it will start the divestiture
process immediately and hopes to complete by the end of May
2013.
Nike is the industry leader by a stretch in the U.S. footwear
and athletic apparel industry.Over the years, the company has
acquired many well known brands to further strengthen its
leadership position. These brands include Converse Inc., which
designs, markets and distributes athletic footwear, apparel and
accessories; Cole Haan, a leading designer and marketer of luxury
shoes, handbags, accessories and coats; Hurley International LLC,
which designs, markets and distributes action sports and youth
lifestyle footwear, apparel and accessories; and Umbro Ltd. a
leading U.K.-based global soccer brand.
We believe the reason behind the divestiture is that Cole Haan
and Umbro's performance does not match with the performance of
Nike's other brands. During the third quarter of 2012, Nike's total
revenue grew 15.1% to $5,846 million from $5,079 million in the
prior-year quarter, primarily driven by growth in all key
categories of NIKE Brand, and in geographic regions excluding
Japan. Revenue for the quarter surpassed the Zacks Consensus
Estimate of $5,829 million.
Our Recommendation
We believe the company's decision to divest its two
underperforming brands will boost its bottom line. Meanwhile,in an
attempt to expand its global reach and market share, Nike is
capitalizing on growth opportunities in emerging markets,
especially China. The company is focusing on other tools, such as a
direct-to-consumer business model, to expand geographically. We
believe that Nike's continued investment in China and focus on the
direct-to consumer business will not only help in expanding market
share, but will also facilitate in strengthening its competitive
position.
However, sluggish discretionary spending and intense competition
amid rapidly changing customer preferences keep us on the
sidelines.
Nike competes with
PVH Corporation
(
PVH
) and
Brown Shoe Company Inc.
(
BWS
). Currently, the company maintains a Zacks #2 Rank, which
translates into a short-term Buy rating. However, we retain a
long-term 'Neutral' recommendation on the stock.
BROWN SHOE CO (BWS): Free Stock Analysis Report
NIKE INC-B (NKE): Free Stock Analysis Report
PVH CORP (PVH): Free Stock Analysis Report
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