Saturday, December 20, 2014
The Olympics — investing in sportswith Emile Wallace-Waddell
With the Olympics coming up, many investors may be pondering how to find opportunities within the realm of sports. It is expected that 216 nations will be participating for medals, glory and global adoration as athletes compete across 300 events in this summer's Olympic Games. The event in itself gives the world's sporting goods companies a window to showcase its wide range of products. With millions of people watching various sports, it can positively impact the earnings of such companies and may translate into stock appreciation.
Nike, the world's largest sporting goods company, was founded in 1964 and has grown into a major publicly traded clothing, footwear, sportswear, and equipment supplier based in the United States. Nike, which operates in more than 160 countries, currently holds approximately 50 per cent market share in US and about 35 per cent of the global market. The company also has a strong brand portfolio comprising of subsidiaries such as luxury-clothing brand Cole Haan, Converse Inc, Hurley International LLC, Nike Golf and Umbro.
The 2012 Summer Olympics, which begins on July 27 in London, is one of the biggest sporting events in the world and will be a perfect platform for Nike to drive its brands and display innovation through the sponsorship of teams and individual athletes. The company currently sponsors the US Olympic team and Jamaican athletes including Nesta Carter, Sherone Simpson, Kerron Stewart, Shelly Ann Fraser and until recently, Asafa Powell. Nike sponsored athletes can have a positive impact on the company's image and its stock price based on their performances.
In the past Nike's stock has appreciated near significant sporting events such as the 2010 World Cup Competition and the 2008 Olympic Games. In 2008, Nike stock rose on the opening day of the games to US$62.95, coming from US$56.26, later rising to US$67.79 in September when the games were complete. Its footwear division was the biggest gainer during the 2008 Olympics where it introduced its Flywire and Lunar lines, which generated US$2 billion in Revenue annually.
In the case of the 2010 World Cup, which was held from June 11 to July 11, the company's stock climbed to US$74.94, coming from US$70.77 during the event. It dipped later to US$ 70.15 before the competition was over but continued on an upward trend shortly after the completion ended, peaking at US$ 90.05. With this in mind, these large competitions present opportunities to investors.
The UEFA European Football Championship presented a big opportunity for Nike. The company sponsored eight out of the 16 teams that competed in the tournament. The teams included France, Poland, Holland, Portugal, and Croatia, while its Umbro subsidiary sponsored the English, Swedish and Irish teams. Even though a Nike sponsored team did not win the competition, football is the most followed games outside the US and Nike may still benefit from a significant increase in its football footwear and apparel Sales in Europe.
The company plans to debut a wide array of cutting-edge performance innovations for track and basketball for this summer. The new products range from the Flyknit footwear, to the Hyper Elite basketball uniform and the next evolution of Lunarlon footwear.
Nike's Flyknit footwear will revolutionize running with its pioneering shoe construction, backed by athlete insights, and use of new proprietary technology. Fabric variations in the shoes will be engineered for a featherweight, formfitting and virtually seamless shoe. With all the structure and support knitted in, the Flyknit Racer shoe weighs a mere 160g for a size 9. This makes it 19 per cent lighter than the company's Zoom Streak 3, a shoe worn by first, second and third place athletes in the men's marathon at the 2011 World Championships. The Flywire shoe was a best seller and the new Flyknit shoes are expected to be its successor.
Also in the company's lineup is the new Nike Pro Turbospeed, which is the lightest track uniform ever built by the company. Nike put numerous hours of research and development into the suit, which will be donned by athletes from the USA, Russia, Germany and China.
The company trades on the New York Stock Exchange under the ticker NKE, and has traded as high as US$114.40 over the past year, with a current price of US$90.48 (as of July 3, 2012), and currently has a market capitalization of US$40.73 billion. Nike recently posted its 2011/2012 fourth quarter Earnings Report which revealed a 7.58 per cent fall in Net Income to US$549 million from US$594 million, its first drop since November 2009. Demand Creating Expenses, also known as Marketing expenses, increased by 23 per cent to US$760 million, as Nike took aim at the European Football Championships and the Summer Olympics in London. Furthermore, a US$24 million charge relating to restructuring its business in Western Europe and a higher tax rate during the quarter directly contributed to the reduced earnings. Of note, Nike plans to sell its Umbro and Cole Haan units due to a combined loss of US$43 million before interest and taxes in fiscal 2012. The company forecasted that if it were to hold on to the brands it would lose as much as US$75 million by the end of fiscal 2013.
Sporting goods companies all over the world will display their wares to millions of people for the 17 days of the Olympics take place. Souvenirs and memorabilia may also help to bump company revenues. Nike has directed a lot of its energy into marketing for the summer Olympics as it is an outlet for the brand to showcase innovation and to increase its recognition through the athletes and countries it sponsors. The new products that the company has lined up for the summer may translate into bigger gains, making Nike a brand that may be worth the attention of investors, especially since its stock price has been on a pullback from US$110.92.
Emile Wallace-Waddell is a Research Administrator at Stocks and Securities Limited and can be contacted via email@example.com
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