COMPANY SUMMARY
COMPANY SUMMARY
NIKE, Inc. was incorporated in 1967 under the laws of the State of Oregon. Our NIKE digital commerce website is located at www.nike.com. On our NIKE corporate website, located at investors.nike.com. NIKE is the largest seller of athletic footwear and apparel in the world. We sell our products through NIKE-owned retail stores and through digital platforms (which we refer to collectively as our “NIKE Direct” operations), to retail accounts and a mix of independent distributors, licensees, and sales representatives in virtually all countries around the world. Virtually all of our products are manufactured by independent contractors. Nearly all footwear and apparel products are produced outside the United States, while equipment products are produced both in the United States and abroad. https://s1.q4cdn.com/806093406/files/doc_financials/2018/ar/docs/nike-2018-form-10K.pdf [accessed 7/21/19]
B. Resources, Facilities and Equipment
We are supplied by 124 footwear factories located in 13 countries. The largest single footwear factory accounted for approximately 9% of total fiscal 2018 NIKE Brand footwear production. Virtually all of our footwear is manufactured outside of the United States by independent contract manufacturers which often operate multiple factories. For fiscal 2018, contract factories in Vietnam, China, and Indonesia manufactured approximately 47%, 26%, and 21% of total NIKE Brand footwear, respectively. We also have manufacturing agreements with independent contract manufacturers in Argentina, India, Brazil, Mexico, and Italy to manufacture footwear for sale primarily within those countries. For fiscal 2018, five footwear contract manufacturers each accounted for greater than 10% of footwear production and in the aggregate accounted for approximately 69% of NIKE Brand footwear production. We are supplied by 328 apparel factories located in 37 countries. The largest single apparel factory accounted for approximately 13% of total fiscal 2018 NIKE Brand apparel production. Virtually all of our apparel is manufactured outside of the United States by independent contract manufacturers which often operate multiple factories. For fiscal 2018, contract factories in China, Vietnam, and Thailand produced approximately 26%, 18%, and 10% of total NIKE Brand apparel, respectively. For fiscal 2018, one apparel contract manufacturer accounted for more than 10% of apparel production, and the top five contract manufacturers in the aggregate accounted for approximately 47% of NIKE Brand apparel production. The principal materials used in our footwear products are natural and synthetic rubber, plastic compounds, foam cushioning materials, natural and synthetic leather, nylon, polyester, and canvas, as well as polyurethane films used to make NIKE Air-Sole cushioning components. During fiscal 2018, Air Manufacturing Innovation, with facilities near Beaverton, Oregon and in St. Charles, Missouri, as well as independent contractors in China and Vietnam, were our suppliers of the Air-Sole cushioning components used in footwear. The principal materials used in our apparel products are natural and synthetic fabrics and threads (both virgin and recycled); specialized performance fabrics designed to efficiently wick moisture away from the body, retain heat and repel rain and/or snow; and plastic and metal hardware. NIKE’s independent contractors and suppliers buy raw materials for the manufacturing of our footwear, apparel, and equipment products. Most raw materials are available and purchased by those independent contractors and suppliers in the countries where manufacturing takes place. NIKE’s independent contract manufacturers and suppliers have thus far experienced little difficulty in satisfying raw material requirements for the production of our products. Since 1972, Sojitz Corporation of America (“Sojitz America”), a large Japanese trading company and the sole owner of our redeemable preferred stock, has performed significant import-export financing services for us. During fiscal 2018, Sojitz America provided financing and purchasing services for NIKE Brand products sold in certain NIKE markets including Argentina, Brazil, Canada, India, South Africa, and Uruguay, excluding products produced and sold in the same country. Approximately 6% of NIKE Brand sales occurred in those countries. Any failure of Sojitz America to provide these services or any failure of Sojitz America’s banks could disrupt our ability to acquire products from our suppliers and to deliver products to our customers in those markets. Such a disruption could result in canceled orders that would adversely affect sales and profitability. However, we believe that any such disruption would be short-term in duration due to the ready availability of alternative sources of financing at competitive rates.
https://s1.q4cdn.com/806093406/files/doc_financials/2018/ar/docs/nike-2018-form-10K.pdf [accessed 7/21/19]
C. Marketing Methods
Annual sales revenue is $36.36B for 2018. https://www.marketwatch.com/investing/stock/nke/financials (accessed 6/29/19)
We experience moderate fluctuations in aggregate sales volume during the year. Historically, revenues in the first and fourth fiscal quarters have slightly exceeded those in the second and third quarters. However, the mix of product sales may vary considerably as a result of changes in seasonal and geographic demand for particular types of footwear, apparel, and equipment, as well as other macroeconomic, operating, and logistics-related factors. Because NIKE is a consumer products company, the relative popularity of various sports and fitness activities and changing design trends affect the demand for our products. We must, therefore, respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, styles, and categories, and influencing sports and fitness preferences through extensive marketing. Failure to respond in a timely and adequate manner could have a material adverse effect on our sales and profitability. This is a continuing risk.
We report our NIKE Brand operations based on our internal geographic organization. Each NIKE Brand geography operates predominantly in one industry: the design, development, marketing, and selling of athletic footwear, apparel, equipment, accessories, and services. Our reportable operating segments for the NIKE Brand are North America, Western Europe, Central & Eastern Europe, Greater China, Japan, and Emerging Markets. Our NIKE Brand Direct to Consumer operations are managed within each geographic operating segment.
The Company’s operating segments are evidence of the structure of the Company's internal organization. The NIKE Brand segments are defined by geographic regions for operations participating in NIKE Brand sales activity. Each NIKE Brand geographic segment operates predominantly in one industry: the design, development, marketing, and selling of athletic footwear, apparel, and equipment. The Company’s reportable operating segments for the NIKE Brand are: North America, Western Europe, Central & Eastern Europe, Greater China, Japan, and Emerging Markets, and include results for the NIKE, Jordan, and Hurley brands. The Company’s NIKE Brand Direct to Consumer operations are managed within each geographic operating segment. Converse is also a reportable segment for the Company and operates in one industry: the design, marketing, licensing, and selling of casual sneakers, apparel, and accessories.
Global Brand Divisions are included within the NIKE Brand for presentation purposes to align with the way management views the Company. Global Brand Divisions primarily represent NIKE Brand licensing businesses that are not part of a geographic operating segment, and demand creation, operating overhead, and product creation and design expenses that are centrally managed for the NIKE Brand.
Corporate consists largely of unallocated general and administrative expenses, including expenses associated with centrally managed departments; depreciation and amortization related to the Company’s headquarters; unallocated insurance, benefit and compensation programs, including stock-based compensation; and certain foreign currency gains and losses, including certain hedge gains and losses.
D. Management and Organization
Nike has a geographic divisional organizational structure. This structure is based on the company’s needs in its global organization, as well as the uniqueness of conditions in regional markets. The following characteristics are notable in Nike’s organizational structure:
1. Global corporate leadership
2. Semi-autonomous geographic divisions
3. Global divisions for Converse and brand licensing
http://panmore.com/nike-inc-organizational-structure-characteristics-analysis (accessed 6/29/19)
The executive officers of NIKE, Inc. as of July 15, 2016, are as follows: Mark G. Parker, Chairman, President and Chief Executive Officer ; Chris L. Abston, Vice President and Corporate Controller; David J. Ayre, Executive Vice President, Global Human; Andrew Campion, Executive Vice President and Chief Financial Officer; Trevor A. Edwards, President, NIKE Brand; Jeanne P. Jackson, President & Strategic Advisor; Hilary K. Krane, Executive Vice President, Chief Administrative Officer and General Counsel; John F. Slusher, Executive Vice President, Global Sports Marketing; Michael Spillane, President, Product and Merchandising; Eric D. Sprunk, Chief Operating Officer.
https://www.investopedia.com/articles/insights/052516/top-4-nike-shareholders-nke.asp (accessed 6/29/19)
F. Social Responsibility
Our goal for 2025 is to use 100 percent renewable energy in our owned and operated facilities and to catalyze momentum toward broader adoption of renewable energy in our supply chain. Today, our World Headquarters in Oregon, European Headquarters in the Netherlands, and European Logistics Center in Belgium use 100 percent renewable energy. https://purpose.nike.com/carbon-energy (accessed 6/29/19)
Strengths
Strong Global Brand: Nike is the most valuable sports brand in the world. Its “Swoosh” logo is instantly recognizable around the globe. Low-Cost Manufacturing: Virtually all of Nike’s footwear is manufactured outside of the United States by independent contract manufacturers who operate multiple factories. Strong Research and Development: Nike takes its research, design, and development efforts very seriously, and it believes this is one of the key factors for its success. Technical innovation in both the design and manufacturing process of its footwear, apparel, and athletic equipment has helped the company continue to produce better products, which have enhanced athletic performance and reduced injuries. The company has its own staff of specialists in the areas of biomechanics, chemistry, exercise physiology, and related fields, and also uses advisory boards made up of athletes, coaches, trainers, orthopedists, and other experts who consult with Nike about designs, materials, and concepts for products and improvements.
Weaknesses
Ongoing Perception of Poor Labor Practices: It wasn’t long ago that Nike was facing intense criticism of its labor practices and work conditions. However, over the past 20 years, it has undertaken efforts to improve conditions for its roughly one million contract workers. While conditions have improved, many of its factories in developing countries still do not meet Nike’s own standards. The company itself has acknowledged that the low wages for some of its workers remain a concern. Safety issues at certain locations are also an issue. If some type of disaster were to occur at one of its facilities, this would no doubt hurt the company’s image. High Prices: Due to its strong brand, Nike can typically command a premium on the products it sells, which in turn supports higher margins and profitability. However, the cost of its footwear is higher than most of its competitors, which makes its products out of reach for many customers around the globe, particularly in emerging markets. There is also the risk of declining demand when an economy falls into recession, as consumers have lower discretionary spending for non-essential items.
Opportunities
Emerging Markets: While Nike already has a presence in many emerging markets, we believe that there is still significant growth potential there. Rapidly growing economies like China, along with other emerging markets like India and Brazil, have the potential to drive future earnings growth. Innovative Products: Given Nike’s focus on R&D, as mentioned in the strengths section of this analysis, the company is typically at the forefront of product innovation. While products like FuelBand, a wearable technology that monitors physical activity, may not have been as successful as hoped, Nike still has its eye on the next “big thing”. The company’s brand strength, coupled with its focus on R&D, should allow it to remain at the forefront of new technologies in the footwear and wearable technology space.
https://www.gurufocus.com/news/325905/nike-analysis-of-strengths-weaknesses-opportunities-threats (accessed 6/29/19)