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Nike: Company Analysis

Executive Summary:

The famous shoe Company with the swoosh logo has gone from strength to strength, since its

inception in 1962, headquartered at Beaverton, Oregon to emerge as an industry leader – the

most competitive sports and fitness company(www.nike.com). However of late, there has

been some drop in sales because Adidas has teamed up with Reebok and has also managed to

win the bid to outfit all athletes of the Australian team for the next three years which is a

substantial contract worth over 20 million Australian dollars (Pullen 2005).

Company Profile:

The Company was founded by Bill Bowerman and Phil Knight and the first shoe with the

Nike Swoosh was introduced in 1972. The swoosh on the Nike shoe embodies the wing of the

Greek goddess Ni-Key who is the goddess of victory sitting beside Zeus, inspiring the most

courageous warriors on to victory(www.trizera.com). The Company started out

manufacturing running shoes with cushioned mid soles and expanded into a wide range of

products including sporting goods and T shirts. Branch offices are located at New York city,

Yarmouth Maine, Montreal Canada, Costa Mesa California and various locations all over the

world. As of May 31, 2005, the Company operated 184 stores in the United States and 190

stores internationally (Gale Database).

The Company’s Mission statement is “To maximize profits to shareholders through

products and services that enrich peoples’ lives” while their value statement is “To bring

inspiration and innovation to every athlete in the world.” John McEnroe, Joan Benoit, Shane

Warne and Andre Agassi became some of the famous athletes who promoted Nike products.

The Company Objectives are (a) to provide a supportive work environment to help employees
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maximize their contribution to Nike (b)provide quality and innovative services internally and

externally (c) identify focused customer segment opportunities and (d) establish ties with

those customer segments to (e) maximize profits.(www.trizera.com)

Nike currently employs about 24,667 employees worldwide and its annual sales as of

May 2005 were $13,739.70 M. Total assets as of May 2005 were 8793.5 million dollars and

total liabilities 3149.3 million dollars and revenue rise was slow during the last quarter.

Shares are currently being traded at about $80 per share.(Gale Database), As of September

20th, quarterly profits had jumped by 32% and pushed up the value of its stock up to $83.45.

(Sage 2005: C1). The company earned 432.3 million dollars in the last quarter.

Company culture and growth/marketing strategy:

Nike corporate culture remains close knit, as if it is a small company although it

operate on a global scale in association with its partners. As a global company, the

organization works on the principle of diversity, enjoying a close relationship with its

shareholders, suppliers, distributors and partner companies.(www.nike.com). However, in

terms of social sustainability reports, Nike was unable to qualify in terms of its social index,

because since 2001, there were concerns expressed about the labor practices of its sub

contractors, such as low wages, forced overtime, using military to suppress protests and

unsafe working conditions. However as of July 2005, the Company has been included in the

social responsibility index because there have been significant efforts within the organization

to address the concerns of the critics and take action on the corporate shortcomings

(www.nike.com)

While the Company started out as a part time venture for its founders, the

incorporation of the swoosh logo literally lent wings to the growth of the Company. The Nike
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brand was launched at the U.S. Olympic trials in 1972 and Steve Prefontaine became the first

athlete to wear Nike shoes and advertise them(www.trizera.com). This has been the keynote

of the Company’s growth strategy. Celebrity endorsements have helped boost the sales of the

Company, and the volume of its business has expanded through its alliances with various

subsidiary sports goods manufacturers such as Hurley International Exeter Brands

group(www.nike.com). During the 1970s Nike developed a variety of sophisticated sports

shoes for various markets which were so successful that the Company was able to go public in

1980 with 2 million shares of common stock.

The Company has also remained at the forefront through the superiority of its sports

product and the introduction of new technology in their manufacture. Nike has remained the

most consistently popular brand of athletic footwear, with the closest competition coming

from Reebok. Its consistently superior product has made it the preferred brand and made the

Nike family expand internationally as well, with a European, Asian and Australian division.

In the U.S. markets, Nike has remained the industry leader in the athletic shoe market.

According to Charlie Denson, the President of Nike, the success of Nike has a great deal to do

with the power of the human spirit and through the establishment of an emotional connection

with the customer. (Baugh, 2005). The Company’s strategic alliance with NBA and its

celebrity promotions through the NBA star Michael Jordan have also reaped rich rewards for

the company in the marketplace.

S.W.O.T.Analysis:

Strengths:

 Strong, sustained brand name and image

 Superior quality of its products

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 Celebrity endorsements of its athletic products

 Consistent profits over the last several years

 Profitable collaborations with strategic partners worldwide

 Outsourcing through its international subsidiaries and Diversity of products

Weaknesses:

 Price of Nike products generally perceived as pricey

 Allegations of labor abuse by Nike corporate subsidiaries

Opportunities:

 Expansion into sporting goods and general merchandise sales(Sage 2005)

 Innovative new campaign on running bare feet as sales generator (Lees 2005)

 Acquisition of starter brand of low priced shoes to expand market (Sage 2005)

 New strategy and logo for Bauer and Nike Hockey brand (New Strategy, 2005)

Threats:

 Rising oil process pinching consumer spending for pricey shoes

 Acquisition of Reebok by Adidas-Saloman poses potent competitive threat (Carr

2005)

Conclusion:

Nike has been enjoying a steady consistent profitability due to its superior sports

shoes, diversification of its products and its good relationship with its suppliers and

distributors. However, the merger of Adidas and Reebok poses a potent competitive threat for

Nike’s future profitability, as also rising gas prices which could impact upon consumer
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spending. Therefore Nike needs to focus more on expanding its market through its lower

priced range of products in order to maintain its lead position in the industry.

References cited:

* Baugh, Alison. (2005) “Utah State University: Nike President gives Utah State

University students advice. Financial Times Ltd. Oct 10, 2005.

* Carr, Bob. (2005). “ADIDAS And Reebok join forces: neither company alone could

challenge Nike one on one.” Sporting Goods Business, Sept 2005 volume38,

issue 9, p19(1)

* Lees, Nina. (2005). “Nike: Free to hit global screens.” Australian Business Intelligence,

September 12, 2005.

* “The History of Nike”.[Online] Available at:

http://www.trizera.com/jsp/nikehist.html; accessed 10/24/2005.

* Nike: Company Overview: [Online] Available at:

http://www.nike.com/nikebiz/nikebiz.jhtml?page=3; accessed 10/24/2005

* Nike: Company Profile and financials: [Online] Available through the Gale

Database; accessed 10/24/2005.

* “New strategy for Nike’s hockey brands” just-style.com, Oct 5, 2005

* Pullen, Jill. (2005). “Adidas wins bid for 2008 Olympic Games.” Australian Business

Intelligence. October 12, 2005.

* Sage, Alexandria. (2005).” Nike stock soars as sales jump: quarterly profits up 32%;

“running on all cylinders”. The Seattle Times, September 20, p C1

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APPENDIX 1: NIKE FINANCIAL STATEMENTS:

Annual Sales $13,739.70 M Sales, Company Information

Employees 24,667, Company Information
Sales/Employees $557,007.00
Year Founded 1962
Fiscal Year May 31, 2005
Features Exporter, Importer, Public Company, Headquarters Location
Ticker (Stock Exch) NKE (NYSE)
CIK 0000320187

NIKE INC CL B
Company Financials

Pricing And Performance

Symbol 52 Wk High 52 Wk Low Last
NKE 84.250 83.050 83.480
Change Open Previous Close Report Date
0.280 83.210 83.200 10/24/05
Annual Balance Sheet ($mil)
  05/05 05/04 05/03 05/02
Assets
Current Assets
Cash & Equivalents 1,388.0 828.0 634.0 575.5
Receivables 2,262.1 2,120.1 2,101.1 1,807.0
Inventories 1,811.0 1,633.5 1,514.9 1,373.8
Other Current Assets 889.7 930.2 429.8 401.2
Total Current Assets 6,351.1 5,512.0 4,679.8 4,157.7

Non-Current Assets
Gross Fixed Assets
3,179.1 3,132.3 2,988.8 2,741.6
(Plant, Prop, & Equip.)
Accumulated
Depreciation& 1,573.4 1,545.4 1,368.0 1,127.1
Depletion
Net Fixed Assets (Net
1,605.8 1,586.9 1,620.8 1,614.5
PP&E)
Intangibles 541.5 501.7 183.8 437.7
Other Non-Current
295.2 291.0 229.3 233.0
Assets
Total Non-Current
2,442.5 2,379.6 2,034.0 2,285.3
Assets
Total Assets 8,793.5 7,891.6 6,713.8 6,443.0

Inventory Valuation
FIFO and Avg. Cost FIFO FIFO FIFO
Method
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Liabilities, Stockholder's Equity, & Shares

Current Liabilities
Accounts Payable 843.9 763.7 572.7 504.3
Short Term Debt 76.0 152.6 281.1 480.5
Other Current
1,079.3 1,092.5 1,161.4 851.2
Liabilities
Total Current
1,999.1 2,009.0 2,015.1 1,836.1
Liabilities

Non-Current Liabilities
Long Term Debt 687.2 682.4 551.5 625.9
Deferred Income
462.6 418.2 156.1 141.6
Taxes
Other Non-Current
0.0 0.0 0.0 0.0
Liabilities
Minority Interest 0.3 0.3 0.3 0.3
Total Non-Current
1,150.1 1,100.9 708.0 767.7
Liabilities

Total Liabilities 3,149.3 3,109.8 2,723.1 2,604.0

CDA/Investment Insider Buying and Selling Activity (000's) as of 10/08/01

Insider Activity Chart

APPENDIX 2; COPY OF ARTICLE BY ALEXANDRIA SAGE

The Seattle Times (Seattle, WA), Sept 20, 2005 pC1

Nike stock soars as sales jump; Quarterly profit

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up 32%; ''Running on all cylinders''.

(Business)

Full Text: COPYRIGHT 2005 The Seattle Times

Byline: Alexandria Sage; Reuters

LOS ANGELES -- Nike posted a bigger-than-expected 32 percent jump in quarterly

profit yesterday on strong sales in the key U.S. market.

The news pushed its stock up $4.99, or 6.4 percent, to $83.45.

The robust sales marked a turnaround from last quarter, when the world's largest
maker of athletic shoes reported its slowest revenue rise in nine quarters.

Orders for delivery through January were up 11 percent from a year earlier, but
Beaverton, Ore.-based Nike said it was keeping its full-year profit forecast because
rising raw-material costs are expected to offset the strong sales growth.

The company earned $432.3 million, or $1.61 a share, in the first quarter ended
Aug. 31, up from $326.8 million, or $1.21 a share, a year earlier.

Analysts, on average, had expected $1.42 per share, according to Reuters

Estimates.

"I hate to use a cliche, but Nike is running on all cylinders," said Jamelah Leddy,
who tracks Nike for McAdams Wright Ragen in Seattle.

Quarterly revenue rose 8 percent to $3.9 billion, helped by an 11 percent gain in

the U.S. athletic-footwear business and 8 percent growth in total U.S. sales,
including apparel and other merchandise. Analysts had expected revenue of $3.8
billion.

Last quarter, the U.S. market was particularly weak for Nike, showing a 3 percent
overall revenue gain and a 7 percent increase in U.S. athletic footwear sales, so
analysts were eager to see improvement there.

Nike has expanded beyond traditional athletic-shoe stores into sporting-goods and
general-merchandise chains, which helped to boost U.S. sales, said John Shanley,
an analyst with Susquehanna Financial Group.

Apparel sales also rebounded thanks to demand for its namesake brand as well as
Michael Jordan merchandise, which made up for lost business when Nike's
contract with the NBA expired last year.

"We're enjoying the strongest brand position we've seen in over five years, and as
the marketplace becomes more challenging, we see more of the buying decisions
falling our way," Nike President Charlie Denson said on a conference call with
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analysts.

Nike has benefited from strong demand for premium shoes like the Shox running
shoe, and it recently bought the Starter brand of lower-priced shoes that are sold
by Wal-Mart Stores, giving it access to a broader market.

Some analysts questioned whether the market for pricey shoes can withstand an
economic downturn if rising fuel prices continue to pinch consumer spending. U.S.
consumer confidence dropped to a 13-year low in early September, battered by
record gas prices and Hurricane Katrina.

"Certainly buying a high-price athletic shoe is not necessarily a consumer staple,"

said analyst Leddy.

Nike also faces fierce competition as Germany's Adidas-Salomon prepares to buy

Reebok International in a move to boost its U.S. position.

Leddy's comments were reported by The Associated Press.

Copyright (c) 2005 Seattle Times Company, All Rights Reserved.

Article CJ136428171

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