Morningstar | Wide-moat Nike’s innovation and key investments should improve product demand and pricing power.
Nike is the world’s largest athletic footwear, apparel, and equipment player with a bent toward performance sporting goods. We view Nike's scale (more than $40 billion in projected fiscal 2019 sales), brand intangible asset (as the leading authority on performance goods with 50% U.S market share and 19% in China), and key sponsorships as competitive advantages that will enable it to maintain its leadership over time. With high returns on capital that approach those of top luxury brands and our expectation that the firm will continue generating excess returns over the next 20 years, we assign Nike a wide moat rating.Because consumers are shifting their purchase patterns, particularly to the online channel, Nike is building out its direct-to-consumer network, consisting of owned retail stores (1,182 as of the end of fiscal 2018) and its website, which combine to drive approximately 30% of sales. We forecast the channel rising at a midteens clip to about half of sales by fiscal 2028. This also brings merchandise closer to the end consumer and enables the firm to respond to customer preferences faster (including more personalization), which should lead to higher sales and margins. Balanced distribution, including direct-to-consumer as well as traditional wholesale, remains important to Nike’s success, which may have been the impetus to pilot a partnership with Amazon, set to begin by selling a small amount of footwear, apparel, and accessories on the platform later this year. Aside from distribution, we continue to think a focus on product innovation that resonates with consumers remains key to ensuring Nike's competitive edge is unwavering.Despite its leading share and global reach, we expect the firm to enjoy outsize top-line growth as a result of opportunities in its international segment (roughly 53% of sales), as athletic participation rates expand globally, particularly in the fast-growing soccer market where it holds a dominant position. We see the potential for long-run expansion in China, where Nike derives around 14% of its sales; we forecast this geography to rise at a low-double-digit rate, thanks to a middle class set to triple by 2020.NIKE is engaged in the design, development and marketing and selling of athletic footwear, apparel, equipment, accessories and services. The company focuses its NIKE Brand product offerings in Running, NIKE Basketball, the Jordan Brand, Football (Soccer), Training and Sportswear categories. The company markets products designed for kids, as well as for other athletic and recreational uses such as American football, baseball, cricket, golf, lacrosse, tennis, walking, and other outdoor activities. The company has license agreements that permit unaffiliated parties to manufacture and sell, using the company-owned trademarks, certain apparel, digital devices and applications and other equipment designed for sports activities.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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