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MessagePosté le: Mar 21 Aoû - 15:51 (2018)
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It's all too easy to get enamored with watching a stock rise and forget that there are risks. Nike (NYSE:NKE) investors run this risk today after witnessing their investment rise by almost 80% in the last two years. Given that the stock is up almost 50% in the last year alone,cheap nike air max, there are likely to be a good number of investors who believe Nike can do no wrong. However, there are three issues Nike is facing, that suggest this run may slow to a walk.


On a semi regular basis, some analyst will point out that Apple gets a disproportionate amount of its sales and profits from the iPhone. Given that this business generated just under 70% of Apple's revenue last quarter, the argument is sound. Apple needs to diversify its revenue stream to lessen this risk to its future results. What does this have to do with Nike?


This leads us to the first issue Nike is facing: Nike's Footwear business is in effect the company's iPhone. Last quarter, Nike generated more than 61% of its revenue from footwear. You could make the argument, that without footwear's outstanding performance, Nike's quarter would have been downright average.


Nike's footwear prominence becomes even more pronounced when you compare the company to Under Armour (NYSE:UA). Many businesses have a relatively larger, and more mature division, and a smaller division(s) that grows much faster. business is growing, but its international potential is what gets investors excited. Amazon is growing its general merchandise sales, but pundits constantly discuss how big the company's Web Services business could be. In the same way, Under Armour started in apparel, but footwear is where the company is growing the fastest.


Where Nike is concerned, there is a strange divergence from the pack. Its largest business (footwear), is growing far faster than its apparel business, despite being twice the size. In fact, Nike's apparel division grew revenue by just 7% year over year. By comparison, Under Armour's apparel business revenue increased by 21% year over year, while its footwear revenue increased by more than 40%.


The point is, if Nike is able to keep its footwear business booming,cheap air max 95, then earnings and revenue will follow. However, unlike its peers, Nike doesn't have a faster growing, smaller division to pick up the slack if footwear falters.


A problem that could cause a speedbump later


The second issue that could cause potential problems for Nike has to do with the Dick's Sporting Goods (NYSE:DKS) chain. alone. In the company's most recent quarter, its revenue grew by 9%, but on the back of a relatively weak 1% same store sales increase.


One factor that investors can use to evaluate any retailer is its inventory level relative to its current quarter sales. A company with too much inventory may have to eventually mark it down, or the retailer may not order as much in the future to slowly turn the inventory. This latter issue is what may be happening at Dick's.


Nike carries just under 56% inventory to current quarter sales, compared to Under Armour at 72%. Foot Locker posted a 64% inventory to current quarter sales figure. By comparison, Dick's carried 103% of its current quarter revenue in inventory. Given the inventory levels at its competition, it seems possible Dick's is carrying excess inventory.


One reason Nike could suffer from Dick's inventory issues is, Dick's said the CALIA line by Carrier Underwood is stealing sales from other premium athletic brands. In fact, Dick's suggested this brand could be its third largest women's athletic apparel line, by the end of next year. Exclusive lines like this help Dick's attract customers, but are negative news for national brands.


The bottom line is, Dick's extra inventory could be a problem for the retailer, and could be a challenge for Nike's future order growth. If Dick's decides to turn its inventory slower to clear the excess, the company won't need as much in the short term from the footwear giant.


It's a big world, but not that big


The third challenge facing Nike is the company's international sales growth could take a hit as competition becomes more prevalent. In the last quarter, Nike reported that 52% of its sales came from overseas. By comparison, Under Armour generated just 12% of its revenue internationally.


While the world is a very big place, some of the faster growing countries like China get a lot of attention because of their size and potential. Under Armour's CEO Kevin Plank specifically said that the company has about 50 stores in China, and plans to roughly double that number this year. Needless to say, as Under Armour grows its international presence, Nike will face a competitor it hasn't had to deal with before in certain areas of the world.


In the end, Nike is a huge company and it reported impressive results in the most recent quarter. The stock is up significantly in the last two years, and in the last year in particular. Unfortunately this can lead to a sense of complacency among investors.


With more than 60% of Nike sales coming from the footwear business, investors need to ask why the company's smaller apparel business is growing at less than half the rate. If Dick's is suffering from too much inventory, this presents another challenge. As Under Armour and other nascent brands expand overseas, Nike stands to lose some sales. Investors who have been treated to huge gains with Nike stock, might take some gains off the table. For new investors, dollar cost averaging and waiting for a better entry point would seem like the best approach.


Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.


I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.


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MessagePosté le: Mar 21 Aoû - 15:51 (2018)
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