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NIKE, Inc. (NKE), Under Armour Inc (UA): Popular Brands Deal With a Fickle Chinese Consumer

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The slowdown in China’s economy has been an issue during all of fiscal 2013 for NIKE, Inc. (NYSE:NKE) and other brands. The company’s first quarter saw heavy discounting due to macro economic pressure and competitive pricing from rivals. Without the right network in place, the company was not able to move its excess inventory to its U.S. factory outlet stores, where demand was much stronger. Camilo Lyon, an analyst with Canaccord Genuity, commented on Marketwatch that the company would probably need three to four quarters to take control of its inventory.

NIKE, Inc. (NYSE:NKE)

Fast forward to the end of fiscal 2013, ended May 31, NIKE, Inc. (NYSE:NKE) reported annual revenues from operations of $25.3 billion, up 11% over last year, and diluted EPS of $2.69. NIKE, Inc. (NYSE:NKE) brand revenue rose 8% across each product type and geographical market, except for its Western Europe and Greater China segments.

Greater China earnings before interest and taxes fell 11% for the year and make up 24.7% of total earnings. CEO Mark Parker stressed during the fourth-quarter earnings call that China and North America are NIKE, Inc. (NYSE:NKE)’s “two big market stories” and the company is focused on creating long-term sustainable and profitable growth in China.

Is Adidas more attuned to the Chinese consumer?

While NIKE, Inc. (NYSE:NKE) maintains it hold of “the premium brand position” in China, adidas AG (ETR:ADS)’ share of the market is growing. CEO Herbert Hainer states in the first-quarter earnings call for fiscal 2013 that the company is approaching a market leadership position and growing faster than its competitors. To better manage its inventory levels, adidas AG (ETR:ADS) closely collaborates with its retail partners and stores to stay informed on what items are selling.

Analysts have stated that the company’s success in China is attributed to the lifestyle and more fashion-conscious brand they are providing the Chinese consumer, who is less interested in traditional sportswear lines. In the first-quarter, ended March 31, adidas AG (ETR:ADS) had net income of $394.9 million, up 6% over the same period last year. First- quarter diluted EPS was $1.88, up 6% from $1.77 in the first quarter of 2012. Sales in the Greater China segment were $524.4 million, also up 6% over last year and making up 11% of total regional sales.

Under Armour Inc (NYSE:UA)’s small but expanding presence in China

Under Armour Inc (NYSE:UA) opened its first store in China in 2011, and in 2012, opened three more with additional openings planned. Canaccord’s Lyon stated that the company’s store in Shanghai generated more sales per square inch during Fall 2012 than Nike and adidas AG (ETR:ADS) storefronts.

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