Rewards
Ask economic theorist Adam Smith what to do about competitors eating into your profits, and he’d probably say “Expand the market!” Nike looks to be doing just that by increasing its global distribution into Brazil, Mexico, Korea, and Argentina. The move has paid dividends, as Nike has — between 2009 and 2011 — increased its revenue by 8%. And with the company’s profit margins increasing every year for the past three years, Nike is certainly moving in the right direction.
In no other genre of the market — in my opinion — are sponsors more important than athletic apparel. And while it’s hard to argue that anyone has done more to raise the bar for a brand than Michael Jordan, I’m most interested in a couple other Nike sponsored athletes — Derek Jeter, Albert Pujols, and Mariano Rivera. These are perhaps three of the most celebrated baseball players of my generation. All three are progressing towards equally impressive milestones – Jeter breaking into the top ten in hits all-time, Pujols just 25 dingers off 500, and Rivera as he continues to grow his all-time saves record – and it could make for a very strong marketing campaign.
Dick’s Sporting Goods
Growing up in New Jersey there were two sports stores to choose from — Modell’s and Sports Authority — until Dick’s moved in and changed everything. It was bigger, and brighter, and the equipment was just better quality. And if I had any sense at 14, I would have invested right there and then. Dick’s was selling for $15 in 2004–today it fetches $49.07!
Risks
Dick’s Sporting Goods and Golf Galaxy — as of January 2012 — had 561 stores nationwide. That’s tops in the industry, but begs the question: how much more expanding can they do? Dick’s is currently concentrated in the eastern U.S., so there’s always westward expansion, or even the international market, but expanding internationally seems to be in the distant future. And there is always the prospect of online distributors– like Amazon.com — cutting into its market. Dick’s Sporting Goods does have an advantage over online sellers like Amazon — customers can test out equipment before they buy. However, it’s hard for many customers to cough up an additional 20% to be able to test drive a product.
Rewards
From a financial standpoint, Dick’s looks dynamic. Over the past three years the company has increased its revenue, net income, and profit margins every year. And when it comes to online distributors — while I have my concerns — I’m optimistic. In consumerism, there is this very funny tendency for the average buyer to go out of their way to save 20%… on a big purchase. However, they’re much less likely to do the same for smaller purchases. Rawlings may make the best baseball gloves, but only a small percentage of baseball players wear $300-plus gloves. The lion’s share of the market is high school and under, consumers who are looking to purchase a glove for $100 or less. At that price, a 20% markup looks much less significant, and holding that bat or glove or helmet in your hands can lead to an on-the-spot purchase.
Box Score
You can’t lose what you don’t put on the table, but you can’t win much either. With that in mind, I’m calling Jarden a home run! While I’m skeptical about the company’s large amount of debt, I really like its brands and acquisition style. Jarden seems to do a good job staying in its “wheelhouse,” acquiring only companies that fit in its niche.
Up next, Nike sends one to souvenir city, for another home run! Nike is the king of athletic shoes and apparel, and I don’t expect that to change anytime soon. Competitors will challenge, but Nike will keep ahead of the pack.
Finally, Dick’s has a number of obstacles to overcome, but I’ll bet on Dick’s sporting good to have continued success this upcoming fiscal year. Consider Dick’s Sporting Goods a home run as well.
The article Are These 3 Stocks a Home Run for Investors? originally appeared on Fool.com and is written by Dave Koppenheffer.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
