Nike Goes for Gold in Sochi

The 2014 Winter Olympics in Sochi, Russia, are just over a week away, with the cauldron set to be lit at the city’s new Fisht Stadium on February 7.

Over the following 16 days, the world’s attention will be focused on the Black Sea resort city, due to terrorism worries, the weather (Sochi is the warmest place to ever host a Winter Games) and, of course, the competition.

That’s where Nike (NYSE: NKE) is poised to shine. The company isn’t an official Olympic partner, but it has done such a good job of tying itself to the Games that most people think it is anyway. In a July 2012 online survey, 37% of U.S. consumers identified Nike as an Olympic sponsor, behind official partners Coca-Cola (NYSE: KO), at 47%; Visa (NYSE: V), with 41%; and McDonald’s (NYSE: MCD), at 40%.

The company has pulled this off—and saved itself the roughly $100-million sponsorship cost—by supplying clothing to National Olympic Committees (over 100 of these groups at the London 2012 Summer Games) and shoes to thousands of individual athletes. For Sochi, Nike’s products include gear for Team U.S.A., hockey jerseys for Team Canada and Team Russia and apparel for International Olympic Committee (IOC) members and staff.

On top of that, Nike excels at “ambush marketing.” In London, for example, 400 athletes wore its Volt neon-yellow shoes, which generated a lot of buzz and let the company sidestep Olympic uniform-marketing rules, because footwear is exempt.

“Nike cleverly leveraged the combination of their recognizable trade dress and logo to get Olympic-sized brand identification without an Olympic-sized budget,” Adam Hanft, CEO of marketing consultancy Hanft Projects, told NBC News. “It’s exactly the kind of guerrilla product insertion that makes marketers smile and the [IOC] nuts.”

The company recently launched a “Play Russian” TV campaign in Russia featuring hockey star Alex Ovechkin, snowboarder Denis Leontyev and figure skater Adelina Sotnikova. The ads salute Russian athletes’ embracing of harsh winter conditions without specifically mentioning the Games.

2014: A Sporting Year

The company spends about 11% of its annual revenue on marketing. It recently placed 24th on Interbrand’s ranking of 2013’s strongest brands, up from 26th in 2012.

The Olympics is just one of the events Nike is gearing up for in 2014. Another is this Sunday’s Super Bowl, where players will be wearing its new Vapor Carbon Elite Cleat, parts of which were made on a 3-D printer.

The company is also focused on this summer’s FIFA World Cup in Rio de Janeiro, Brazil, where it’s up against strong competition from Germany’s Adidas AG (OTC: ADDYY), an established soccer mainstay.

Adidas is the official partner and sponsor of the World Cup, which lets it supply match balls and uniforms for volunteers, as well as licensed World Cup products. However, Nike does have several soccer deals of its own, including with English champions Manchester United (NYSE: MANU) and Brazil’s own national squad.

Nike’s association with big international events has helped it expand into fast-growing markets like Brazil (also home to the 2016 Summer Olympics) and China, where people are growing wealthier and taking a bigger interest in sports and fitness.

North America now accounts for just 45.3% of Nike’s annual revenue, followed by Western Europe (18.0%), emerging markets (16.2%), China (10.7%), Central and Eastern Europe (5.6%) and Japan (3.5%).

Leading the Technology Race

At the same time, the company is growing beyond footwear and clothing: it is currently taking advantage of the wearable computing trend with its FuelBand device, which tracks fitness results, such as calories consumed and footsteps taken and connects to a PC or smartphone to provide a more integrated experience, like letting users compete with each other.

Wearable devices—everything from fitness monitors to smart glasses and watches—are poised for major growth: according to telecom market research firm Berg Insight, manufacturers will ship a total of 64.0 million units in 2017, up sharply from 8.3 million in 2012.

In the second quarter of its 2014 fiscal year, which ended November 30, 2013, Nike reported $6.43 billion of revenue, up 8.0% from a year ago. Earnings per share gained 3.4%, to $0.59 from $0.57. That beat the Street’s forecast by a penny, though revenue came up just shy of the consensus estimate of $6.44 billion.

The company widened its gross margin to 43.9% from 42.5%, thanks in part to higher prices and easing raw material costs. It’s also doing a good job of balancing inventory with demand: its stock of clothing, shoes and other gear was up 7% from a year ago, just below the 8% revenue increase.

The stock has risen 29% in the past year, compared to 18.0% for the S&P 500. It sports a p/e ratio of 22.9, which compares favorably to competitors like Under Armour (NYSE: UA) at 61.8 and Lululemon Athletica (NasdaqGS: LULU) at 24.0. Analysts are calling for earnings per share (EPS) to rise from $2.69 in fiscal 2013 to $3.00 this year and up to $3.49 in fiscal 2015.

According to figures from Trefis, the sports apparel market will grow at a compound annualized rate of 4% between 2012 and 2019, reaching $178 billion. However, it is highly fragmented and extremely competitive: Nike is a leader in the space, but it only has a 4.9% share of the market. That, plus a rising number of counterfeit goods, could slow its future growth.

Nonetheless, the company believes its annual sales will hit $36 billion in 2017, up from $25.3 billion in fiscal 2013, for a compound annual growth rate of 9.2%. Over the past three years, it has increased its sales at a compound rate of 10.0%, so that figure seems achievable.

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