Will Nike Inc (NYSE:NKE) Survive the Stiff Competition from Adidas?

November 24, 2017, 10:30 am ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Nike Inc (NYSE:NKE) has faced several headwinds in the recent past chief among them being the rising competition from other sportswear companies led by Adidas. Adidas has been slowly taking market share away from Nike, especially in its core North American market and in the growing Chinese market.

Article Summary

Nike is facing stiff competition from a reinvigorated Adidas.

The company’s growth in North America has slowed down.

The company has launched a new initiative targeted at selling directly to consumers.

Here’s the trading report on NKE.

Adidas has experienced a massive resurgence in the North American market where it has grown its revenues by 20% for the past seven consecutive quarters. This is a major accomplishment given that Nike’s growth in this crucial market has drastically slowed down over the same period.

Nike is the leading sportswear company in the world boasting of two of the most popular sports brands in North America, which are Nike and its Jordan brand. However, Adidas has gained significant ground against Nike as evidenced by recent news that Adidas had overtaken Nike’s Jordan brand as the second most popular sports brand in the United States.

Opinions among analysts’ regarding Nike’s future prospects is split as some believe that the headwinds Nike is facing are short-term, while others believe that Nike is on track to being dethroned as the most popular sports brand globally. The growing trend towards casual athletic apparel has affected Nike and Under Armour Inc (NYSE:UAA) negatively as the two companies are positioned as manufacturers of performance gear.

Analysts supporting Nike as a long-term investment refer to the company’s stellar returns on invested capital over the past five fiscal years, which have been above 20% and culminated in a 34.7% return for investors in fiscal 2017. Nike has so far increased its dividend for 16 consecutive years, which attests to the company’s strong financials.

The bullish analysts interpret Nike’s 3% decline in sales over the first quarter of fiscal 2018 as a short-term headwind occasioned by the difficult environment facing the US retail industry.

However, the company’s long-term prospects remain positive given that it recently partnered with Amazon.com, Inc. (NASDAQ:AMZN) in efforts to reach all the consumers shopping online. The company has also launched its new Consumer Direct Offense, which aims at selling directly to end-consumers as opposed to selling via wholesalers and retailers.

It remains to be seen whether Nike’s efforts shall enable the company to stave off the rising competition from companies such as Adidas, and Skechers USA Inc (NYSE:SKX).

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