Nike's priciest shoe yet: The $315 LeBron
For your money, you'll get motion sensors that measure how high you jump. The new model is part of the sneaker giant's plan to hike prices as consumer spending recovers.
The Wall Street Journal reported Tuesday that Nike's price increases are designed to reverse six straight quarterly declines in gross margins as raw materials, shipping and labor costs rise. Other sneaker companies are raising prices as well. Nike's $315 LeBron James shoe is set to debut in the fall and will feature motion sensors that can measure how high players jump. For that price, the sneakers should also guarantee that people who wear them can make a three-point shot.
Consumers are expected to flock to Nike's stores to snap up the LeBron X Nike Plus -- and that worries the Beaverton, Ore., company. It has made retailers such as Foot Locker (FL) and Dick's Sporting Goods (DKS) forgo releasing "hot" sneakers at midnight and will no longer permit them to pre-sell or take reservations for new shoes.
Shares of Nike have barely budged this year. Wall Street had been down on the stock since the company reported disappointing quarterly results, along with many other consumer products companies, amid worries about slowing growth. Activist investor William Ackman has taken a position in Procter & Gamble (PG), the world's largest consumer products company, for that reason. That view, however, may be changing.
Consumer confidence, which had been faltering, rose unexpectedly in August, even though the unemployment rate also edged up and wages remained stagnant. Will that mean more consumers will buy expensive Nikes and other name-brand consumer goods? Perhaps.
Wall Street analysts have an average 52-week price target on Nike of $105.40, about 10% above where it trades now. Sales in the current quarter are forecast to rise 5.5% to $6.4 billion. Under Armor (UA), a maker of trendy athletic apparel, is expected to do much better, posting $575.12 million in revenue in its current quarter, a 23.5% gain.
But there are limits. As Bloomberg News notes that births fell to an 11-year low in 2011 amid worries about the economy. Wall Street expects flat revenue growth at P&G for the next two quarters.
Nonetheless, resurgent consumer spending would be good news for President Barack Obama's re-election efforts. The economy is the main issue in the campaign. GOP challenger Mitt Romney will have a tough time arguing that voters are worse off than they were four years ago if many of them are clad in trendy exercise clothes and high-tech sneakers.
Jonathan Berr does not own shares of the listed companies. Follow him on Twitter@jdberr.
$315 for a pair of shoes. Wonder how that breaks down.
$150 for LeBron.
$100 Nike CEO's and upper management.
$50.00 parts and material.
$14.50 to the store that sold them.
$0.50 for the kid that actually made them.
There's your new American dream under your corporate master job creators. Driving towards wage equalization between first and fourth world countries.
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