Nike's Impressive Growth Makes Growth Companies Green With Envy

Nike is globally revered as a perennially cool sports-gear maker, whose popularity and brand gravitas never seem to wane. The sports-apparel maker is also huge, with only Adidas standing above it in the industry in terms of revenue and market cap. Nike has been growing at a sweltering pace that belies its huge size. The company grew its sales at a very impressive compound annual growth rate, or CAGR, of 12.3% between 2010-2012, which is no mean feat for a company of its size--especially for one that has been around for half a century.

Although Lululemon Athletica  and Under Armour have both been growing at an even faster clip over the same period, the two are still in the growth phase of their life cycles, and their overall revenues pale in comparison to Nike's or Adidas'.


Fiscal 2010

Fiscal 2011

Fiscal 2012

CAGR (2010-2012)

Adidas (includes Reebok)

$7,023 (€5,380)

$7,484 (€5,733)

$8,211 (€6,290)








$1,229 (€941.3)

$1,352 (€1,035.6)

$1,504 (€1,151.9)


Under Armour





Lululemon Athletica






$427 (¥42,576)

$439 (¥43,685)

$470 (¥46,838)


Increasing global market share
Nike has been showing strong growth in the North American market and has been equally impressive in emerging markets. Although the company's sales in China have slackened in the recent past, the company has forecast significantly improved future orders, indicating that its sales there will pick up once again.

The 5% decline in future orders from Western Europe is not a sign of sluggish demand there but rather a reflection of difficult year-over-year comparisons since the previous year's sales were mainly driven by the Olympics and UEFA Euro Championships.

Breakdown of Nike's apparel sales by region


% of Nike Apparel Revenues by Region (Fiscal 2012)

Annual Growth In Apparel Revenues (excluding currency impact)

Future Orders Growth (excluding currency impact)

Fiscal 2012

First nine months of fiscal 2013

North America





Western Europe





Greater China





Emerging Markets





Central & Eastern Europe










But perhaps the best past of Nike's success story is that the company has been steadily growing its share of the global sports-apparel market, from 3.9% in 2007 to 4.9% in 2012. The company is expected to continue this run and will command a 6.5% share of the global market by 2019. You would normally expect smaller and more nimble upstarts such as Lululemon and Under Armour to be slowly gnawing market share from behemoths such as Nike or Adidas, but Nike is not your average large company.

Big but still highly innovative
Nike was recently voted by Fast Company as the world's most innovative company in 2013, which is a rare achievement for a large, built-out company. Thomas J. Peters and Robert H. Waterman co-authored the popular business book "In Search of Excellence" in the early eighties. In their book, they expounded at length why small companies frequently out-innovate their larger counterparts by a huge 4:1 margin.

Well, that might have rung true in the eighties. But the tables have now turned, and the advent of globalization and e-commerce have significantly improved the odds of big companies innovating just as efficiently as small ones. Large but highly innovative companies such as Nike are proving that big does not necessarily mean cumbersome or unwieldy.

Nike produced not one but two fabulous products in 2013 that turned out to be huge hits -- the ultra-light Flyknit Racer Shoes and the much-publicized Fuel Band. Nike's kind of innovation is not simply all about adding bells and whistles to existing products but is of the truly disruptive type that is more commonly associated with start-ups.

Nike has been thriving under the tutelage of CEO Mark Parker, and has seen both its top line and bottom line improve by a huge margin since 2006 when he took the helm. The company's revenue has improved by 60%, while its profits have shot up 57% between 2006 -2012.

Decent valuation
Nike shares carry a very fair valuation compared to peers Lululemon, Under Armour, and Columbia Sportswear .

Lululemon shares have tanked by a huge margin ever since its management lowered its full-year revenue and earnings guidance. Its valuation after the sell-off is now a lot more attractive and comparable to Nike's. Despite the lowered guidance, Lululemon is expected to still continue growing both its top line and bottom line at an impressive pace in 2014.




Under Armour

Revenue Growth 2014




EPS Growth 2014




Under Armour stands out as being extremely pricey, and this could be a problem. Lululemon's expected growth for 2014 is not far behind Under Armour's, yet it's trading at a forward P/E ratio of 25 compared to Under Armour's stratospheric 60.

Under Armour lacks its own patents, which are mostly owned by its suppliers. The company is quite vulnerable to facing increasing competition from other sports- apparel manufacturers once these patents expire.

Under Armour also relies heavily on cotton for its specialty products. The huge 55% rise in cotton prices in 2013 could mean a squeezed profit margin for the business in the coming years. These potential headwinds could slow down growth for Under Armour and make it hard to justify that kind of valuation.

Meanwhile, Columbia Sportswear is still trading at a reasonable valuation, despite its shares having hit 52-week highs. Although the company is the smallest of the bunch, it has a huge global presence with renowned brands such as Montrail, Outdry, Mountain Hardwear, Sorel, and Columbia. These brands are available in 100 countries around the world. Columbia shares yield 1.5%, and the company hiked its dividend by 14% in the third-quarter of 2013.

Bottom line
Although Lululemon and Under Armour are recognized as the global leaders in the specialty-sports-apparel industry, Nike has of late been making some plays here. Meanwhile, the secular trend of growing fitness consciousness, rapidly rising income levels in emerging economies, and the increasing adoption of sportswear by women around the world will ensure Nike continues to blaze the growth trail in the future.

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