Unscrambling Monday's Egg

Nike's Tiger Swooshes the Masters

Running Nike through the Chicks' Dozen
by Chick Karin

My second favorite sporting event of the year is The Masters golf tournament. (First favorite - Superbowl.) I absolutely love how they put the whole Masters weekend together on television. From Dick Enberg's voice to the schmaltzy music. And then, leading up to the live telecast we get hours and hours of history, tradition and exclusive behind the scenes stories. I love it. In 1997, and I don't know a person who doesn't remember this, Tiger Woods made history by being the youngest ever to win the Masters. He hugged his father after the victory and the picture was plastered in every newspaper across the country. Even President Clinton got a tear in his eye. Tiger's the man.

So I'm watching it again this past Sunday, and being a Chick, I was checking out his equipment. (Get your head out of the gutter; I'm a classy golf groupie.) I was looking at what he was wearing and the companies he represents. A Chick likes to look beyond the sand and the stud-muffin trying to swing out of it. So there he is, walking up the eighteenth fairway about to win his second Masters, and he was wearing a red Nike shirt with a white swoosh. Can you say, "Unbelievable advertising?" Hmmmm. it got me thinking. How does Nike do when we pull it through the Chicks Dozen?

Just Do It,
Karin

Nike (NYSE: NKE)

1. Buy What You Know  I know Tiger. I love Tiger. I don't need to know anymore than that, but I do. When I was a ninth grade cheerleader we were all required to wear the white Nike tennis shoes with the red stripe. Remember them? Everyone had them, even the boys. How queer were we? My son also uses Nike hockey equipment, has a Nike Lacrosse bag, and my daughter has Nike hockey skates. I guess I didn't really have to go into the whole Tiger story when I have Nike stuff sittin' right here under my nose, and under my kitchen table, and under all the kids' beds, and under. well you get the picture. I just love Tiger, so I wanted to share the red shirt story. Don't get me started on the Michael Jordan story...but he too is a Nike man. He even has his own brand of Nike shoes and apparel called Jumpan23.

2. Keep It Simple Swoosher  Nike, Inc. designs, develops and markets high quality footwear, apparel, equipment, and accessory products. Can't get much simpler than shoes, clothing and sporting goods. Go to their website www.nike.com and check out all the simple things they sell. Ooh, and while your there, check out the ad from the movie "What Women Want."  In the movie Mel is an advertising executive and as part of the movie he needs to develop an ad for Nike appealing to women. I saw the movie, and the ad. You'll love it. It's simple. And again, it was just for the movie. but Nike always has great ads.

3. Industry  Its main industry is your foot, but they'll cover your body in any sport you choose. The question we have to ask ourselves in this industry category is; Is it an industry that will grow faster than others? As Nike digs it foot further into golf, basketball, hockey, tennis, and soccer, it has an opportunity to grow as fast as other industries and with Nike's worldwide market they have the audience ready and waiting. (Check out all the languages they translate their website into.)

4. Leader In It's Field Depends on what field you're on. The soccer field. leader. The track field. leader. The football field. eader. The basketball court. leader. The closest competitor Nike has is Reebok (RBK). Close behind Reebok would be the privately held New Balance Athletic Shoe Inc. of Boston. Nike has missed a market when it comes to offering a $50-$100 priced shoe. Nike has been catering to the rich and has forgotten about the average Joe. A pair of Nike Shox basketball shoes cost $150. Kids can't afford that, and there is no way their parents are going to pop for that when they'll grow out of them in six months. In the past three quarters Reebok has gained a larger share of the shoe sale market because it offers many more shoes in this $50-$100 price range. Reebok was also one of the best stocks in the S & P 500 last year, though Nike fared pretty well. just not as well as RBK. Of the over $100 brand of shoes, Nike has eight of the most ten popular brands. The Nike Men's Air Jordan basketball shoes were the favorite first three, followed by the Nike Shox basketball and running shoe. The only problem is, even if you're the leader in the over $100 brand, you don't have as many people buying them.

5. Repeat Profitability  Did I just say that my kids grow out of their shoes every six months? Repeat profit from this household. Oh, and every time Tiger repeatedly wins a golf tournament, cha-ching Nike.

For the following numbers I used the Annual Income Statement and Balance Sheet from Marketguide.com. Also, the numbers are in millions of U.S. Dollars.

6. Gross Margins

(Sales - Cost of Goods Sold) / Sales

(8,995.1 - 5,403.8) / 8,995.1=

5,403.8 / 8,995.1 = .39

.39 x 100 = 39%

7. Net Margins

Net Income / Sales

579.1 / 8,995.1 = .0644

.0644 x 100 = 6.44%

8. Cash to Long Term Debt

Cash* / Long Term Debt

254.3 / 470.3 = .54

*cash, including short term investments

9. Flow Ratio

(Current Assets - Cash*) / (Current Liabilities - Short Term Debt)

(3,596.4 - 254.3) / (2,140.0 - 924.2) =

3342.1/1215.8 = 2.75

10. Increasing Growth

(most recent year's sales - last year's sales) / last year's sales = X

(8995.1 - 8776.9) / 8995.1  =

218.2 / 8995.1 = .024

.024 x 100 = 2.4%

Ummmm. Nike didn't meet any of our numbered qualifications for the Chicks Dozen. From the Gross Margins on down, they failed the Chicks test. Just because we choose to run a company through the Dozen, it doesn't always have to meet our criterion. This is how we weed companies out.we have do it to find out. Now I'm sounding like a Nike ad.

11. Strong Management and History

Mr. Phillip Knight, 62, a director since 1968, is one of the co-founders of NIKE and is their current CEO. He's been their President for almost the full 33 years, except for a couple of years in the middle. He must have needed a vacation. Prior to 1968, Mr. Knight was a certified public accountant and was an Assistant Professor of Business Administration at Portland State University. He recently named three 22-year Nike veterans to newly created positions to help kick start their U.S. sales. Remember the overpriced shoe problem of above? He's got some guys on the problem now and hopes to regain some of their market share.

12. Buy On Sale