by Thomas Young
In a couple of weeks, Nike, Inc.
(NKE - Analyst Report
) will release earnings (June 26). Regardless of how well earnings will come in – and it’s likely they will beat analysts’ estimates given Nike’s history of consistently beating analysts’ estimates – there are many reasons to believe Nike has a very bright outlook in the coming decade.
Here are six reasons Nike is due for a better decade than the last.
First, Nike was named by Fast Company as the most innovative firm in 2013. As an example, Nike is set to release Back to the Future-
like self-lacing shoes in 2015, five years after initially filing for a self-lacing shoes patent.
Nike’s product manager Brandon Burrough sums up the Nike culture crisply: “One of my fears is being this big, slow, constipated, bureaucratic company that’s happy with its success.” Customers generally reward innovative companies with a higher margin, especially those among the best in the world.
Second, Nike is well positioned to take advantage of the quickly expanding global “middle class” in such places as China, India, Brazil, and other East Asian countries. In addition to the economies currently classified as fast-growing, Nike is hugely popular in what may turn out to be the fastest growing area in the 21st
Century – Africa. If there’s any shoe company set to benefit from the rise of Africa, it’s Nike.
Third, the importance of physical activity is gaining popularity again in the western world. With a shift towards increased physical activity, Nike is perhaps the main benefactor of such a behavioral change, as individuals search out products to wear during the active portions of their lives.
Fourth, Nike is on the cutting edge when it comes to the digital transformation of the physical world. As Forrester Research analyst Sarah Rotman Epps put it, “Nike has broken out of apparel and into tech, data, and services, which is so hard for any company to do.” Nike plans to expand upon its partnerships through such deals as the one it struck with TechStars, which attracts startups to build on the Nike+ platform.
Nike CEO Mark Parker put the Nike innovative mindset succinctly, “Just imagine if your body could control or change the music that you're listening to--if your movement could actually change the cadence of the music, the tempo, or the beat. Sound--there's a lot of things going on in that area that are very exciting … So there could be new ways to get feedback--through audio feedback--for how your body is performing. The same could happen with heart rate."
Fifth, as just mentioned Nike has the mindset and nimbleness to expand beyond its own core competency. For instance, Nike is a leader in the eyeglass industry, something unthinkable from a company thought of as a sports clothing leader.
Sixth, Nike’s financials are strong. Being a consumer discretionary has its downside, but also has its strong upsides. The transition from a recovering worldwide economy to an accelerating economy certainly positions Nike to be a better-than-average equity market performer.
See Nike’s full cash flow statement
In all, if you had to bet on a company with a bright future in the coming decade, you’d likely choose a company with a highly innovative culture, an ability to expand beyond its core competency, and a company agile enough to be a large benefactor of the shifting global growth horizon, such as Nike.
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