Key Statistics
EV/EBIT = 26.52x
ROE = 37.39%
Debt/Equity = 80%
FCF Yield = 2.19%
Dividend Yield = 1.28%
Market Capitalization = $165.72 billion
The Company
Nike is the biggest athletic apparel company in the world. Nike is a Dow component and has proven itself over the decades to continually fortify its moat.
Nike’s origins trace back to 1964 when it was founded by Phil Knight. He began selling Japanese running shoes at track meets out of the trunk of his car.
The company was originally called “Blue Ribbon Sports” and Phil Knight’s supplier was the Japanese firm, Onitsuka. In 1971, Knight ended the relationship with Onitsuka and created Nike. The iconic swoosh logo was created at the same time.
The origins of Nike from the early, fast growing, and cash-strapped years are chronicled in the book Shoe Dog. It’s one of the best business books ever written and I highly recommend that you read it.
Sneakers exploded in popularity during the 1970s. In the 1970s, it became more commonplace for people to wear athletic shoes casually in their everyday lives. Jogging and running also emerged as popular ways to exercise. Today, this sounds odd, but prior to the ‘70s people didn’t wear sneakers as their primary footwear and running & jogging weren’t commonplace.
“I believe it's jogging. Or yogging, it might be a soft J. I'm not sure, but apparently you just run for an extended period of time. It's supposed to be wild.” - Ron Burgundy, 1974
The Nike Cortez was their hot product in the ‘70s. Cortez sneakers were worn by athletes in the 1972 Olympics and exploded in popularity.
The blue Cortez looked good with blue jeans and it became a signature ‘70s casual style.
Interestingly, the name - the Cortez - was actually a response to Nike’s competitor, Adidas. Adidas had a shoe called the “Azteca.” Cortez was chosen as the conquistador who defeated the Aztecs.
By 1980, Nike controlled 50% of the US sneaker market. Despite many new competitors emerging over the decades, Nike is still the top sportswear brand in the US, controlling 44% of the market.
A key to Nike’s success is its partnership with celebrity athletes. The most significant celebrity deal was with Michael Jordan in 1984. In 1984, Converse was the official shoe of the NBA. Michael Jordan defied this relationship and signed a deal with Nike. Jordan began wearing the Nike’s during games. As Michael Jordan became the greatest basketball player of all time and captured the American imagination, his chosen footwear became even more popular.
In 1985, the Air Jordan was released and was an incredible success. In the first year of selling Air Jordans, Nike sold $126 million worth of the product. They only expected to sell $3 million.
The Air Jordan remains one of Nike’s signature products to this day. In 2022, $5.1 billion of Nike’s sales are due to the Jordan brand, representing nearly 11% of total revenue for the entire company.