NIKE, Inc. (NKE) Needs to Overcome These Hurdles

NIKE, Inc. (NYSE:NKE) shares have done very well this year by providing a return of 22% to investors. The company’s array of brands and presence across various markets have proven to be a big advantage and have helped the company march forward without much difficulty. So it was not surprising when NIKE, Inc. (NYSE:NKE) yet again released solid results for its fourth quarter recently, after which the share-price appreciation should continue further, but will it?

Strong performance

Strong demand for NIKE, Inc. (NYSE:NKE)‘s products continues to push its business higher. Fourth- quarter revenue increased to $6.7 billion, up by 9% excluding the impact of changes in foreign currency. Fiscal 2013 revenue from continuing operations was up by 8% to $25.3 billion, or 11% excluding currency changes.

Fourth-quarter earnings were up by 27% to $0.76 per share and for the full year, earnings increased 11% to $2.69 per share. Its results were driven by innovation and brand strength.

Revenue was helped by a good performance from running, basketball, men’s and women’s training products, and these segments offset slight declines in sportswear, action sports and soccer. In spite of this, revenue from other businesses grew by 10%. The company continually evaluates its existing portfolio to ensure resources are invested in those businesses that are accretive to the Nike brand and represent potential growth and the highest returns.

Way forward

As mentioned earlier, NIKE, Inc. (NYSE:NKE)‘s range of brands gives it diversification, which helps it withstand fluctuations in any one single region. But the company is now facing trouble in one of the world’s fastest growth markets in China. Of late, the Chinese business has been under pressure with falling sales, and Nike expects declines in the next couple of quarters as well. The North American market has been acting as a hedge against trouble in China, but the company might be in more trouble if moves of its competitors are taken into account.

A slowing Chinese economy does not bode well for NIKE, Inc. (NYSE:NKE) and this has led consumers to search for cheaper alternatives. The company’s home market has been holding up well, but with the likes of Under Armour Inc (NYSE:UA) making good strides, Nike will have to be on its toes. Under Armour Inc (NYSE:UA) has been doing well of late and the company’s latest results tell us that it would prove to be a strong competitor for NIKE, Inc. (NYSE:NKE).

Under Armour Inc (NYSE:UA) has been growing both apparel and footwear revenue impressively. Apparel revenue increased 23% last quarter and footwear sales jumped 21%. The company is looking to hit revenue of $4 billion in the next three years and the fact that its marketing budget as a percentage of revenue equaled Nike last year justifies its intent. The company beat estimates in its latest quarterly report and also bumped up its guidance, which means that its business is witnessing good momentum.