WHY WALL ST. LIKES NIKE
Byline: Rosemary Feitelberg
NEW YORK — “Nike apparel is smoking.”
That was the way one analyst described the just-released third-quarter results of the Beaverton, Ore.-based company.
According to some industry observers, additional gains for Nike seem to be a given. The only question concerns the size of those gains.
“Nike has the advantage of being almost a household word. That is invaluable for anyone trying to do better than the rest of the field,” said Kurt Barnard, publisher of Barnard’s Retail Marketing Report. “For the time being, there are no great risks for Nike.”
As reported, Nike apparel sales skyrocketed 72.5 percent in the third quarter ended Feb. 29, to $346.3 million from $200.8 million.
Apparel sales in the U.S. soared to $218.5 million, marking the first time that business exceeded $200 million in a quarter. International apparel sales were up 55 percent to $127.8 million.
Overall, net earnings rose 19.2 percent to $113.7 million, or 78 cents a share, from $95.3 million, or 65 cents a share, a year ago. Sales climbed 33 percent to $1.49 billion from $1.12 billion.
Jennifer Black Groves, executive vice president of Black & Co., the analyst who described the brand’s apparel results as “smoking,” said the company is “listening to consumers, not taking anything for granted and is thinking leading edge all the time.”
During fiscal 1996, Nike could pull off a 50 percent gain in apparel sales, she said. Functional Innovation Technology, All Conditions Gear and Organized Team Sports — the company’s names for its high-performance apparel groups — are driving forces in apparel sales, she said.
Volume for women’s sports gear increased 58 percent for the third quarter. The increasing media exposure for games such as women’s college basketball is expected to contribute to Nike’s strength in the market.
“Their women’s business is extremely hot due to women’s increased participation in sports and fitness,” Groves said. “Three years ago, you didn’t hear about women’s sports.”
With the endorsements of some leading female athletes, Nike should see increases in sales of apparel for running, basketball, volleyball, tennis, soccer and skiing, a new category, she said. Nike’s recent introduction of soccer apparel and footwear is a good move, Groves noted, since 40 percent of soccer players worldwide are women. This year, soccer sales should reach $100 million at wholesale — compared to $20 million a year ago.
Faye Landes, a Smith Barney analyst, agreed that soccer, which has recently shown strong sales, should be important in the year ahead.
Introducing a signature shoe for basketball star Sheryl Swoopes underscores the company’s commitment to the women’s business in various facets, Landes said.
With sales of women’s footwear climbing, Nike stands to gain more of the $7 billion activewear market, since gains in footwear generally precede those in apparel, reported Diane Daggett, an analyst at Pacific Crest Securities in Seattle.
“I think some day we’ll look back and be amazed with what Nike has done in women’s,” Landes said. “They’re going about it systematically and thoroughly.” With the Olympics rapidly approaching and Nike positioned for a strong presence on and off the playing fields, women’s athletics should gain even more exposure and Nike should see substantial gains, Groves said.
In a conference call with analysts last week, Nike executives said apparel sales are stronger due to improved product, better merchandising and the integration of management executives from worldwide competitors, Groves revealed.
“Retailers can’t get enough product; it sells out as fast it comes in,” she said.
In addition to its strong brand recognition, Nike offers affordable apparel, a wide variety and innovative merchandising, Barnard said.
By showcasing apparel and athletic footwear in its Nike Town stores in Atlanta — host city for this summer’s Olympics — Chicago, Portland, Ore., and Costa Mesa, Calif., the company has transformed retailing into a form of entertainment that could set a precedent for retailers, said Barnard, adding that Nike Town is what drives Nike earnings.
Women account for 44 percent of the customers in Nike stores. Four new Nike Towns are scheduled to open this year, including one here that is expected to attract more than 2.5 million visitors annually.
“Building four walls, putting up a door and filling a store with merchandise might have been the key to success 30 or 40 years ago, but not today,” Barnard said. “Unless you are able to make yourself stand apart from the crowd, you might as well not get out of bed in the morning.”
Citing Sears, Roebuck & Co. and Wal-Mart as the only major retailers seeing high apparel sales due to “low prices, huge selections, attractive merchandising and excellent brand names,” Barnard said Nike is also benefiting from that strategy.
International sales are an important part of Nike’s growth, Daggett said. Business in Japan, which accounts for 15 percent of overall international sales, gained 69 percent in the third quarter. During that same period, Germany and France increased by 49 percent and 29 percent, respectively.
Business is also being fueled by apparel sales and women’s athletic footwear sales, she said. Having realized the potential in women’s apparel, she added, the company should see a 60 percent increase in fourth-quarter apparel sales in the U.S.