U.S. sales less important to Nike
The company's CEO says China, India and Brazil are where the growth are.
In a recent Wall Street Journal interview, top Nike (NKE) executive Mark Parker talked about his ambitious goal to boost global sales 40% by 2015. His strategy? Focus on China, India and Brazil and connect with these emerging markets’ emerging middle classes. And most interesting of all, Nike is planning this move under brands that don't bear its trademark "swoosh."
Nike is looking to build on strong momentum in the last year or so. Shares are up about 5% as of early this morning as the market opened higher, bringing the stock’s YTD returns to about 13% while the market is up by only 3% since January 1. Shares are trading at a new all-time high of about $75, considerably above the high $60s pricing we saw before the financial crisis.
So can will this global focus mean even bigger success for Nike, or is it a gamble that could cause the stock to give back what it has gained recently?
It remains to be seen whether Nike can hit its numbers, but the move certainly seems to be wise for the global sports giant. Take a good look at three other iconic American companies that are in a similar position with mature brands in the U.S.: Domino’s Pizza (DPZ), Coca Cola (KO) and McDonald’s (MCD).
Domino’s pizza now gets almost half of its sales from outside the U.S. About 55% of Domino's $5.6 billion in sales last year were in the United States, and that international same-store sales have increased for 64 consecutive quarters (that’s 16 straight years). Coke first quarter earnings showed that the company is clearly focusing on global sales as well. North American Coca Cola sales dropped 1% while beverage sales worldwide were up 5% thanks to sharp increases in China, Latin America and India. As for Mickey D’s, the results are similar -- biggest reason McDonald’s earnings impressed Wall Street in February was because international sales growth offset a decline in U.S. same-store sales. The Golden Arches saw a decline of -0.7% in the U.S., offset by a brisk growth rate of 4.3% in Europe, Asia, the Middle East and Africa.
The fact is that the biggest companies in the world have mature U.S. operations these days and don’t have much more growth potential. For instance, with nearly 14,000 American locations, MCD doesn’t have many more profitable places to set up shop – and continued competition from other fast-food chains makes it difficult to see dramatic growth. The solution is obvious: Look overseas.
With a market cap of $36 billion and one of the most recognizable names and logos in all of sports, Nike surely isn’t going to cede its dominant position any time soon. And as Domino’s, McDonald’s and Coke have shown, it can actually be in the best interest of a company to lose a step or two in the American marketplace if it means making even bigger strides abroad.
Nike has topped Wall Street expectations for each of the last four quarters, and could see significant growth if it makes the right moves into the international marketplace. The only question is whether the company will move fast enough to offset any declines in the American marketplace as it refocuses its sales strategy to China, India and Brazil.
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