July 6, 1998
Wounded Nike winning back Wall Street
Gina Binole Business Journal Staff Writer
Jennifer Black has been here before.
One of the many Wall Street analysts who watch Nike Inc., Black has stuck by the Beaverton-based company in the last year. She has continued to rate its stock a buy on behalf of Portland's Black & Co. despite a $67.7 million loss for the three months ending May 31, the Asian economic crisis, anti-swoosh sentiments, employee layoffs, an executive exodus, excess inventory, sluggish domestic footwear sales, decreased marketing muscle, a disappointing year for Tiger Woods and Michael Jordan's questionable career status.
Following Nike's fourth-quarter earnings report released this week, she was joined by analysts at companies such as Goldman Sachs, DLJ and Morgan Stanley Dean Witter, who upgraded Nike shares to market outperform, buy and strong buy, respectively.
"This is what happened last time, in 1994, when things were bad," Black said. "We were out there by ourselves, and then everyone started to change their minds and see the long-term potential."
Nike earned $399.6 million for the year, company officials said this week, a 49 percent drop from fiscal year 1997. They also admitted that revenue for fiscal year 1999 likely will be lower than the record-breaking $9.6 billion for 1998.
But Black and other analysts have been heartened to hear that Nike founder and chairman Phil Knight has promised to turn the brand around and has resumed a greater responsibility in the day-to-day activities of the company. He said this week he felt Nike needed to develop excitement in the U.S. business with "pockets of sunshine," which would lead to an increase in futures orders.
Recent announcements, which detailed executive appointments, product development, sub- and stand-alone brands and inventory sales, also have been giving Wall Street analysts reason for cautious optimism.
Gordon McFadden, formerly president of Helly-Hanson Inc.'s U.S. operations, will take charge of Nike's new stand-alone category of its All Conditions Gear outdoor products. Nike said the separate status underscores the company's commitment to footwear, apparel and equipment for the outdoor enthusiast. It has lagged behind its competitors in this category. Nike will unveil its first line of snowboards, boots and bindings in 1999. Industry experts said the move could allow the company to depart from its usual team sports marketing approach and perhaps create a new brand.
Larry Miller, former vice president of Nike's U.S. apparel and president of Jantzen Inc., has been named president of the Jordan brand. Like ACG, the brand will function as a separate business unit. Reaction among industry experts here is mixed. Some say the brand will continue to be a big hit even when Jordan announces his retirement. Others, like Vince Francom, a Safeco analyst from Seattle, said: "I think the aura of Michael Jordan will still be intact a year after he's gone, maybe two. But it does diminish him. When you're selling something like athletic wear, you want the person to be using the product."
Clare Hamill, a 17-year Nike veteran, has assumed the helm of Nike's expanded equipment division as its corporate vice president. The division will offer products ranging from watches, eyewear, sport balls, protective equipment, socks and bags.
John Notar, a Nike employee for the past 13 years, succeeds Miller as vice president of the U.S. apparel division. Nike's worldwide apparel sales have grown to $3 billion in the last five years.
Andy Mooney, previously head of Nike's equipment division, will now serve as vice president of global brand management. In this newly created position, Mooney will take responsibility for brand marketing, advertising, consumer insights and Nike's internet activities.
Juliet Moran, a 14-year Nike veteran who recently served as director of international marketing, is the new vice president and global brand director for running.
Mike Wilskey, also a 14-year Nike veteran, has been named vice president and director of global brand marketing. "We've brought in a lot of new people, which is cause for optimism," said Nike president Tom Clarke. "We've added a lot of experience. We've also given new assignments to veterans and we like our lineup as it looks today."
Francom said it's definitely worth noting that 25 percent of Nike's vice presidents have been with the company less than two years. He said it's equally important to consider why folks like former vice president for apparel Steve Gomez and Bob Falcone, chief financial officer, left. They cited personal reasons. But Francom and others also conceded that change can be good.
"Maybe World Cup fever and Nike's three teams advancing into the quarterfinals got to us," Josie Esquivel, an analyst for Morgan Stanley Dean Witter, said in her most recent company report in which she upgraded the stock.
"But historically, Nike has bounced when futures have bottomed, and we believe that time is now. While we do believe it is still a bit early, we are more optimistic that the turnaround should be evident in the company's fiscal 3Q99 and are urging aggressive investors to jump in now."
Although the Asian economic situation remains anybody's guess, and excess inventories still exist, Esquivel said she had more conviction now that management will be able to rise to the challenges.
Of course, what Nike really has going for it is a design team more than 300 strong and deep research and development pockets, analysts said. Although the company laid off about 1,600 people and has pledged to pare spending by about $300 million, it tripled its 1995 R&D coffers in part to roll out the Alpha Project in December. Nike is expecting Alpha to help reenergize the brand and bring back consumer enthusiasm.
Mark Tedeschi, editor of Sporting Goods Business, said he has heard nothing but good news from retailers regarding Nike's products for spring 1999.
"I think they've done a good job of regrouping their business and getting rid of much of the excess inventory," Tedeschi said. "Everything I've heard from retailers is that they are back on track and this is the best line they've had in years."
Black said she believes in Nike and hasn't really doubted the company in the 19 years she's been covering it. She can't help but remember when most of Wall Street wrote Nike off in 1994. And then, Nike came back, posting annual sales gains of 20 percent, 35.9 percent and 42 percent from 1995-97. "Nike can pull itself out of this," she said.
The company just needs some cutting edge products that give consumers reasons to seek out the swoosh when they go shopping, she said.
© 1998, The Business Journal
