Zacks_Analysts' Blog : Nike Sets Sales Target - Analyst Blog

As per a Reuters report, Nike Inc. (NKE) has set an annual sales target of $4 billion from China by fiscal 2015. To attain this lofty aim, the company hopes to bring about a reform in the exercise and sporting habits of Chinese citizens. The company CFO mentioned that China, with its large population, is tuned into sports without actively participating in it.



The company had reported annual sales of $2.1 billion in China in the last fiscal year while the first quarter 2012 booked Chinese sales of $528 million.



The company, which is already operational in China with 7,500 outlets, aims to expand its store operations there, particularly cashing in on Chinese sports stars with which it has endorsement deals, such as French Open tennis champion Li Na. The company is also looking for a deal with Chinese track star Liu Xiang, which will help in boosting sales of its running and athletic gear.



With an eye on capturing the Chinese sports apparel market, the company is also arranging to host a snowboarding event near Beijing next year strategically before the Winter Olympics when this sport gains popularity.



Taking into account Nike’s dominance in the athletic industry, we believe that the company has the ability to drive consistent growth. The company’s long-term strategy of aggressively expanding operations into emerging markets and focusing on direct-to-consumer business and other brands adds to our positive sentiment.



The unique amalgamation of solid balance sheet strength, free cash flow generation and an efficient managerial team will enhance Nike’s top-line performance in the coming quarter.



Nike’s exposure to international markets however makes the firm susceptible to currency fluctuations. The strong U.S. dollar may adversely affect the top- and bottom-line results. The weakening of foreign currencies against the U.S. dollar may require the company to either raise prices or contract profit margins in locations outside the U.S. An increase in product price may have a direct impact on consumer demand.



Nike’s business remains highly competitive in both domestic and international markets, running up against local as well as established players like Deckers Outdoor Corp. (DECK), Adidas AG (including Reebok) and Puma.



We maintain our long-term Neutral recommendation on Nike. The quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates upward directional pressure on the stock.
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