Joanna Niewiarowski – Financial Statement Analysis

February 1st, 2013

Financial Performance NIKE vs Adidas

1. GENERAL INFORMATION

INDUSTRY AND ITS DEVELOPMENTS

BRIEF HISTORY OF COMPANY

FINANCIAL HIGHLIGHTS

2.1. INCOME STATEMENT ANALYSIS

2.2. BALANCE SHEET ANALYSIS

2.3. CASH FLOW ANALYSIS

2.4. FINANCIAL RATIOS ANALYSIS

CONCLUSION

1. GENERAL INFORMATION

1.1. Industry and its developments.

Sport is an integral part of modern contemporary society. Sport has always been associated with discipline, dedication and perfection and hence sportsmen have always been respected, across borders, religions and races. Sportsmen, professional or amateur, need quality gear, specific to their game, to be able to compete better. It is this market that the two conglomerates, the subjects of our study, cater to. Both these companies started off as footwear makers for the modern athlete, their innovative designs and technology creating waves. But now these firms have diversified. They compete on the broader platform of footwear, apparel, accessories and equipment. Today they are among the world’s top corporations, with a worldwide presence.

The latest picture of the industry has not been as rosy as it has been earlier. At this stage, with the big four, Nike, Adidas, Reebok and Puma and the others such as Converse and New Balance, the industry is experiencing hyper competition. The reasons for this being that the demand for the products have been decreasing and at the same time, there has been an increase in the popularity of alternate footwear. This inadvertently has resulted in decreasing margins and the quest for new markets and innovation to get the profits up again.The worries seem to have ended, at least momentarily with the emergence of China, Turkey, Brazil and Russia as huge untapped markets for their products. Of these, China is the biggest bet for the big guns. Why? China’s huge middle class is rising and the country’s ever increasing wealth serve as a classic ingredient for market ignition. Both Nike and Adidas realized this early and invested heavily in advertising during the 2008 Beijing Olympics. Adidas partnered the games and Nike, as always focused on individual player and team endorsements. The Chinese marker saw huge residual sales after the Olympics. The opening up of these markets has provided respite to the industry and they are making good use of it. Already most of these firms use South Asia as their manufacturing base, to make use of the cheaper labor, in particular. Now they have a greater incentive to move to South Asia as their market seems to be shifting here too.India is ranked the 4thlargest economy by GDP (Russia 47.6%, Indonesia 30.5%, China 28.1% and India 25.5%, according

According to a new market report published by Transparency Market Research ( "Footwear Market - Global Industry Size, Market Share, Trends, Analysis, and Forecast, 2012 - 2018," the global footwear market was worth USD 185.2 billion in 2011 and is expected to reach USD 211.5 billion in 2018, growing at a CAGR of 1.9% from 2011 to 2018. In the overall global market, Asia Pacific is expected to maintain its lead position in terms of revenue till 2018. Asia Pacific is expected to enjoy 30.1% of the global footwear market revenue share in 2018 followed by Europe. The global footwear market is experiencing a stable growth rate due to changing fashion trends. This market has exhibited sustainable development owing to driving factors such as rising demand for innovative designs, growing awareness about healthy and active lifestyle, rising population and disposable income levels, and rise in retail culture. Non-athletic footwear is the largest market segment and is expected to grow at a faster CAGR as compared to the athletic footwear segment. Various fashion trends in the market such as demand for innovative designs and styles, and celebrity endorsement is driving the non-athletic footwear market. The global footwear market is segmented into Men, Women and Kids footwear. Men's footwear market is a leading segment with 52% market share of the overall footwear market. Kids footwear market is expected to grow at a CAGR of 3.7% due to the high demand of comfortable and designer footwear for kids. Based on type of distribution, footwear retailing is sub-divided into store-based and non-store retailing.

Nike is the world leader in athletic and non-athletic footwear segment and comprehensively leads the overall global footwear market. The footwear market is largely consolidated with top five players including Nike, Adidas, Reebok, Puma and New Balance holding around 70% market share. Other major players in the footwear market are Asics, Converse, Sketchers and K-Swiss. The popularity of local manufacturers and growing piracy in developing countries remains the major challenge for global footwear manufacturers. The second challenge for global players is the solution of the looming crises of climate change, water scarcity and quality. These resource constraints are even greater long-term challenges than today's financial turmoil. Natural resources and ecosystem services have been undervalued, and the environmental impacts of business have been regarded as externalities. All this is changing and rightly coming into view as a priority for inclusion in business planning. Nike created the North Star guide to proof its approach the balances people, planet and profit. (

1.2. Brief history of Company

Bill Bowerman and Philip Knight started the company we know today as Nike in 1962. It was originally known as Blue Ribbon Sports. Bowerman was Knight’s track and field coach at the University of Oregon. Philip Knight went on to study at Stanford where he published a paper on ending the German domination in the athletic footwear industry. He traveled to Japan and entered into an agreement with the Onitsuka Tiger company and became their sole distributor in the US. Bowerman and Knight received their first shipment of 200 shoes and sold them at local meets to make a good profit. Bowerman, who had earlier designed shoes for his athletes, joined hands with Tiger to make the famous Tiger Cortez shoes, which became worldwide bestsellers and launched the business. In 1971, Knight and Bowerman began to make their own shoes under the brand name of Nike, named after the Greek goddess of victory and bearing the Nike swoosh, which is one of the company’s biggest strengths today. In 1972, Blue Ribbon Sports parted ways with Onitsuka Tiger and became Nike Inc.

Today Nike is the world leader in athletic footwear, with market shares exceeding the other major players by significant margins. The Swoosh and ‘Just Do It’ slogan are huge brand identities. Nike is a truly global player and seen as a model for innovation driven growth.

Nike produces a wide range of sports equipment. Their first products were track running shoes. Now, Nike sells an assortment of products, including shoes and apparel for sports activities like association football, basketball, running, combat sports, tennis, American football, athletics, golf and cross training for men, women, and children. Nike is well known and popular in youth culture chay culture and hip hop culture as they supply urban fashion clothing. Nike recently teamed up with Apple Inc. to produce the Nike+ product which monitors a runner's performance via a radio device in the shoe which links to the IpodNano. Nike has 5 subsidiaries:Cole Haan, Converse, Hurley International, Nike Golf, Umbra.

2. FINANCIAL HIGHLIGHTS

2.1. Income Statement Analysis 2011/2012'

Year over year, Nike Inc. has been able to grow revenues from $20.9B USD to $24.1B USD. Most impressively, the company has been able to reduce the percentage of sales devoted to selling, general and administrative costs from 32.08% to 30.80%. This was a driver that led to a higher net income (growth) from $2.1B USD to $2.2B USD.

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