Nike hits the big screens

Sportswear company Nike (NKE) is working hard to solve its inventory issues created by last year supply chain problems, while delivering two digits growth across their business lines. But for the sports and movie fans April will bring an opportunity to find out how, almost 40 years ago, one iconic rookie player helped Nike become one of the most important brands in basketball.

Market commentary by eToro analyst for Romania, Bogdan Maioreanu

Fans are waiting for the beginning of April launch of Air – Courting a legend, the movie starring Matt Damon, Ben Affleck, Jason Bateman and Viola Davis. The biopic will focus on Sonny Vaccaro, the creator of the Air Jordan sneakers. In 1984 Nike was looking to find a way to become one of the premier basketball shoe brands in the U.S., and Vaccaro decided to pursue a  partnership with Michael Jordan, a rookie who had just been drafted third overall by the Chicago Bulls from the University of North Carolina.

As Michael Jordan’s career took off, Air Jordans turned into a cultural phenomenon, selling millions of shoes, making millions of dollars and leading to the Jordan Brand line of shoes and apparel under the Nike umbrella. A trailer of the new movie was aired during the Super Bowl for an estimated cost of 7 million dollars paid by Amazon. The movie will be launched on April 5 in theaters and later will also be streamed by Prime video.

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It is not a fluke that the movie Air is portraying one of the most iconic brands and athletes in the history of sports: Jordan. The brand is still appealing to customers despite Michael Jordan’s retirement from 2003. In fact, in the latest earnings report, Nike mentioned that all its brands, Nike, Jordan and Converse drove two digits currency neutral growth last year.

Nike beat quarterly earnings and revenue expectations whilst trimming its excess inventory pile quarter-on-quarter. Inventory is a key focal point for investors as higher levels caused by supply chain disruptions meant Nike had to discount to shift its products, which dented margins. CEO Matt Friend reassured investors by saying that the business is making “tremendous progress on inventory” and giving them hope for higher margins.

Nike shares have had a strong six months, gaining more than 25% as consumers continued to spend, with its unquestionable brand presence helping the sportswear giant navigate a tricky few years. Although guidance came in slightly soft for the full year, there are plenty of positives for investors, such as falling inventories, solid direct-to-consumer sales, and China’s re-opening.

Nike’s main competitor, Adidas (ADDYY) had its earnings report earlier this month and was also showing problems, mainly stemming from the Kanye West Yeezy contract cancellation. As a result, the company recorded a negative impact of around 600 million euro last year, with guidance for another revenue loss of around €1.2B from potentially not selling the existing stock of Yeezy products.

Nike shares are showing an increase of close to 1% year to date and those of Adidas of almost 8%. Investors fear that in solving the inventories issue Nike’s margins will decrease even more. But if one investor would have had invested in 2012, 10.000 dollars in total, equally in both companies, at the end of February this year his position would have been worth over 42000 dollars. This represents an annualized return of 13.75%.