Nike filed results for the 3rd Quarter Ending 28 of February 2017 and Nike’s share price declined sharply in after-hours trade.
At AXIAM, short-term stock price movements do not concern us. Any short-term declines in stocks that we rate as valuable, could provide buying opportunities. Here we look at some for the factors that guide our decision to buy.
Nike’s Brand Strength
WPP, the world’s largest communications group, publishes the BrandZ Top 100 Global Brands Report and assigns a value to the world’s top brands.
In the 2016 BrandZ Report, Nike’s brand leapt in value from 2013, more than doubling from USD 15,8 billion to USD 37,4 billion in 2016.
BrandZ values the Under Armour and Adidas brands at USD 6,6 billion and USD 5,2 billion respectively. Neither one of these competitors made it into the the Top 100 Global brands in 2016. In March 2016, Nike’s Quarterly revenue exceeded Under Armour’s market capitalisation.
If all of these facts still don’t make it easy to acknowledge Nike’s supremacy in this category, perhaps the fact that Nike sold approximately 120 million shoes in 2015 (about 25 pairs a second) will give clear evidence of the value of this company and it’s brand.
Brand value and global distribution are key factors in our investment philosophy and the Nike brand is worthy of being on our buy list.
We only buy shares that we plan to hold onto for 10 years or more, so we also reflect on some of the key business initiatives and challenges that Nike faces.
Direct to Customer
Direct To Customer (DTC) sales are critical to the future of Nike for many reasons. DTC is a higher margin business, but DTC also attracts more costs as it requires inventory and other overheads. However, DTC outlets like the Nike Concept Stores and online stores give Nike better control over the brand experience clients have in store and online. Nike can also use digital technology to enhance the experience and extend the range available to shoppers. These are instrumental in maintaining brand affinity and loyal repeat purchases.
The online ordering side of DTC is growing fast because it provides clients with convenience and choice. DTC is also the gateway to customisation, where Nike clients can order and customise their sneakers and apparel. The ultimate conclusion of this trend is fully tailored items manufactured on demand by 3D printers and other technologies.
Building a DTC business of scale will not be easy and represents a transition period for Nike and the retail sector at large. We will be watching to see how Nike navigates this transition and positions their brand for the future.
Nike Share Price
A great company is not a good investment at any price, it is important to watch the share price and not buy at a time when the price is overly inflated. We will continue to watch Nike for ideal buying opportunities. Impact of key initiatives Based on our research, it is not obvious if the initiatives will have a material impact on Nike’s short-term financial performance. The initiatives will not affect our long-term investment thesis while Nike continues to sell 120 million plus shoes annually.
At AXIAM, we buy shares in companies, regardless of their geography, that have great brands that are known, loved and used around the world daily and we keep them for a long time. Sign up to our newsletter or follow us on Twitter to learn more about investment in the best global brands or contact our fund management team to invest.