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NIKE, Inc. (NKE): This Company Could Be a Good Fit for Your Portfolio

NIKE, Inc. (NYSE:NKE)NIKE, Inc. (NYSE:NKE) continues to show why it’s the best run shoe company in the world. Its brand is one of the most valuable in the world. Besides shoes, the company also makes apparel and sporting equipment.

Continues to impress with earnings and repurchases

NIKE, Inc. (NYSE:NKE)’s latest earnings report was another great one and was well received by the market and analysts. In the company’s fourth quarter, revenue rose 7% to $6.7 billion. Earnings per share rose 27% to $0.76 per share. Revenue for the entire year rose 8% to $25.3 billion and earnings for the full year rose 11% to $2.69 per share. Overall gross margin for the year increased 10 basis points to 43.6%.

Nike continues to be a very shareholder-friendly company. Last year, the company repurchased a total of 33.5 million shares for approximately $1.7 billion. In September last year, the company approved a new four-year $8 billion repurchase program. So far out of the $8 billion, only $789 million has been purchased. Nike will be an aggressive buyer of its own stock in the market under this new program.

NIKE, Inc. (NYSE:NKE) also pays an annual dividend of $0.84 per share for a yield of 1.30%. The dividend payout ratio is only 30%. The company has a great balance sheet to finance the dividend and share repurchases with $5.96 billion in cash and only $1.39 billion in debt.

Jogging forward in China

The only problems in the quarter for Nike were Western Europe and Greater China. Weakness in Europe is expected due to the economic situation in that region. China, however, is a concern for Nike. Inventories in China have increased and the company was forced to discount its products. NIKE, Inc. (NYSE:NKE) expects sales in China to be down in the next quarter.

The good thing about Nike is that it’s quick to make adjustments in the marketplace. The company has been working to reduce its inventory in China and reworking its product line to meet the tastes of the Chinese consumer. In May, the company replaced its executive in charge of Greater China. Nike realizes changes need to be made to succeed in China and the company is doing so. CEO Mark Parker said:

The race in China is a marathon. It’s not a sprint, and we’re set for the long-run.

China is where the next phase of growth is for Nike. Consider that Nike just opened its first running store and basketball store last year in China. Comparable growth in its own store is in the double digits. Nike is seeing what’s working in its own store and will use that information to grow with its retail partners. NIKE, Inc. (NYSE:NKE) also benefits from the Chinese consumer’s love of basketball. Nike has contracts with the biggest names in basketball to market to this growing audience.

Innovation

The focus at Nike is on innovation and developing new products. Nike will have the opportunity to showcase that innovation with the Winter Olympics, the Super Bowl, and the World Cup. Nike expects revenue in the next quarter to grow in the mid to high-single digit rate. For the full year, the company expects revenue to be in the upper end of the high-single digit rate as demand increases due to the World Cup in Brazil. Nike expects earnings to grow faster than revenue and be in the low double-digit rate.

The competition

Nike’s biggest competitor is Adidas (NASDAQOTH: ADDYY). Adidas is the largest sportswear manufacturer in Europe and the second-largest in the world after NIKE, Inc. (NYSE:NKE). The company’s brands include Adidas, Reebok, and TaylorMade.

Going forward, Adidas has a lot to gain from the upcoming World Cup. The company sponsors top teams such as Germany, Spain, and Argentina. Adidas is expecting a significant boost that will push soccer-related sales to $2.7 billion.

In terms of China, Adidas is second to Nike in the country with an 11.2% market share. While Nike sales have slowed in the country, Adidas is actually growing revenue in China. Sales were up 6% in the first quarter of 2013.

An up and coming competitor to both companies is Skechers USA Inc (NYSE:SKX). CEO Robert Greenberg was also the founder of shoe company LA Gear. Skechers is best-known for its celebrity advertising.

Things are really starting to look up for Skechers USA Inc (NYSE:SKX). In the first quarter, sales increased 28.6% from the same quarter last year. The company returned to profitability and the outlook for this year is positive. Growth was seen across the board in domestic wholesale, international, company retail operations, and e-commerce.

Going forward, the company plans to open 28 to 32 stores in 2013. Skechers USA Inc (NYSE:SKX) sees growth in the international markets and I agree with that premise. The company continues to sign up new international distributors and is looking to gets its shoes into more markets. Skechers doesn’t have the global footprint of NIKE, Inc. (NYSE:NKE) or Adidas and that, to me, is where the growth is. Considering that Nike had revenue of $25.3 billion last year and Skechers had only $1.67 billion, there’s considerable room for Skechers to grow.

Foolish assessment

The market for these three companies continues to grow. Nike is the undisputed leader with its brand and celebrity athletes. Nike’s dominance is likely to continue. Even though Adidas is making some aggressive moves, the company is still trying to copy Nike’s playbook. Adidas is following the path Nike is on and is not leading. I’d much rather own the leader. Coming to Skechers, the company is more dependent on fashion trends and is not as diversified as Nike or Adidas.

However, the company offers the most upside in terms of growth. As Skechers expands internationally, there are tremendous opportunities to grow revenue and profit. For more conservative investors, I would stick with NIKE, Inc. (NYSE:NKE). For more aggressive investors, I would add Skechers into the mix as well.

The article This Company Could Be a Good Fit for Your Portfolio originally appeared on Fool.com and is written by Mark Yagalla.

Mark Yagalla has no position in any stocks mentioned. The Motley Fool recommends Nike. The Motley Fool owns shares of Nike. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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