Nike: Can it rise like a phoenix? Nike: Can it rise like a phoenix? Nike: Can it rise like a phoenix?

Nike: Can it rise like a phoenix?

Equities 10 minutes to read
Peter Garnry

Chief Investment Strategist

Key points

  • Market leader: Nike is a market leader in footwear and apparel related to sports and lifestyle. With revenue of $51bn the company is twice the size of its competitor Adidas. Nike has over the years been leading on innovation and its brand is by far the strongest in the industry although leaning into political debates might have had a negative impact on the brand in recent years.

  • Quality characteristics: Nike has for decades delivered higher returns than global equities and been an incredible stable business on operating margin and revenue growth. Its return on invested capital has also consistently been in top 20% of all companies in the world highlighting that the company is very well run.

  • Strategic failures: Nike’s share price is down 54% from its peak in 2021. The company has made several strategic failures in recent years. It focused too much on its own direct channel damaging its relationship with wholesale partners. Nike clearly lost relevance with women relative to competitor Lululemon. Finally, the company has failed on its growth strategy in its Asia Pacific & Latin America segment.

From athletic shoes retailer to manufacturer and iconic sports brand

Nike started in 1964 as a simple retailer called Blue Ribbon Sports by Bill Bowerman and Phil Knight selling Japanese shoes from Onitsuka Tiger later known as ASICS. In 1971, the company rebranded itself to Nike and created the iconic “Swoosh” logo. A year later, Nike introduced its first own production footwear deputing in key track and field trials. In the late 1970s, the company expands internationally and also launches air cushioning technology before signing in 1984 the pivotal deal with basketball rookie Michael Jordan to endorse its air cushioning shoes through its Air Jordan line. This becomes a cultural phenomenon and puts Nike on the consumer’s mind in a big way.

In the 1990s, Nike expanded its retail concept with the first Niketown retail store and in 1996 the company launched its first global advertising campaign under the slogan “Just Do It”, which has become one of the most iconic marketing slogans in history. Everything was not rosy in the 1990s, as Nike was accused of bad labour practices in its overseas factories. In 2003, Nike acquired Converse expanding into more fashion-like categories. In 2006, it launched Nike+, a partnership with Apple, connecting footwear with iPod technology to track running performance.

Nike’s innovation continued with its 2012 introduction of the “Flyknit” technology which is an unique shoe material that reduces waste by knitting the upper part of the shoe in one piece. Over the past 10 years, Nike has leaned into the sustainability agenda with its “Move to Zero” campaign in 2015, and in 2018 it leaned into the political debate when it featured Colin Kaepernick, a former NFL player known for his social justice activism, in an ad campaign. Nike was already ahead of the competition on digital sales and the Covid-19 pandemic accelerated Nike’s commitment to its digital channel. In 2024, the narrative seems to have gone from flawless execution and must own brand to that of lack of innovation and failed omnichannel strategy.

The business: US and footwear dominate while women’s revenue is a warning

Nike is a $51.4bn revenue company in athletic footwear and sports apparel. Nike is the market leader with revenue twice that of its competitor Adidas. Nike’s largest segment is the footwear division with 68% of revenue encompassing a wide range of sports and lifestyle shoes. The key brands are Air Max, Air Force 1, and the Jordan brand. The other main division is its apparel with 28% of revenue and includes apparel across sports such as running, basketball, and football. The equipment division is only 4% of revenue and includes everything from sports balls, digital devices, and general equipment for athletic performance.

When we look at the revenue split on regions it is dominated by its North America segment with 43% of revenue which is not necessarily unusual given it is Nike’s home market. But the worrying part is the falling revenue share of its Asia Pacific & Latin America segment since 2018. This segment features many countries with a growing middle class and strong compounding effects in their economies. This segment should be a big growth engine for Nike.

Another troubling fact about Nike is that its men’s collections are selling $20.9bn compared to $8.6bn across its women’s collections suggesting a company that missed the balance in its business and potentially lost the women category. Lululemon which is selling mainly to women delivered $9.8bn in revenue in the last 12 months and is growing much faster than Nike’s women’s collection. Lululemon’s revenue growth is expected at 12% in the current fiscal year compared to -4% for Nike.

Nike’s distribution is split between wholesale (retail partners) and NIKE Direct (online) with wholesale being 56% of revenue and NIKE Direct 44% of revenue. One of the recent problems for Nike and one of the key factors behind the falling share price is Nike’s bet on its direct channel alienating its wholesale channels. In April, the CEO admitted that their direct distribution strategy had gone too far. Direct business is good for margins, but the lower main wholesale business is good for brand awareness and distribution in new markets.

Reading this you might be wondering why we feature Nike as a quality company when they clearly has made some strategic mistakes. Nike is still a high quality company which will be obvious in our 7 powers analysis and the featuring of its quality characteristics based on fundamental data. With the latest setback in its share price it might be one of the most interesting turnaround cases in US equities.

The secret sauce – the 7 powers analysis

The 7 Powers framework is a good framework to evaluate the sustainable competitive advantages of a company, providing an understanding of the factors contributing to a company’s market dominance. The 7 Powers framework, developed by Hamilton Helmer, includes scale economies, network economies, counter-positioning, switching costs, branding, cornered resource, and process power. Here is a short but not complete analysis of Nike through this lens:

  1. Scale economies - Nike’s massive scale allows it to benefit from economies of scale. With global manufacturing operations and large production volumes, Nike can negotiate better terms with suppliers and lower production costs. Nike’s extensive global distribution network enhances its ability to reach customers efficiently, reducing per-unit distribution costs.

  2. Network economies - Nike’s ecosystem, including the Nike+ app and Nike Training Club, creates a community of users that enhances customer loyalty and engagement. High-profile endorsements from athletes and sports teams amplify Nike’s brand value, attracting more customers and reinforcing network effects.

  3. Counter-positioning - Nike continuously innovates with products like Flyknit and React foam, differentiating itself from competitors who may not have the capability or willingness to invest heavily in R&D.

  4. Switching costs - Nike’s strong brand loyalty and connection with customers create high switching costs. Consumers are often reluctant to switch to competitors due to the perceived lower value. Nike’s membership programs offer exclusive benefits and discounts, further increasing switching costs for customers.

  5. Branding - Nike’s brand is one of the most recognized and valuable in the world. It symbolizes quality, innovation, and athletic excellence. Significant investment in marketing and advertising, including iconic campaigns like “Just Do It,” strengthens brand equity and consumer trust.

  6. Cornered resource - Nike has long-term contracts with top athletes and sports teams, giving them access to high-profile endorsements that competitors cannot easily replicate. Nike holds numerous patents for its innovative products, providing a technological edge over competitors.

  7. Process Power - Nike’s advanced supply chain management and logistics capabilities ensure efficient production and distribution. Continuous investment in R&D and a robust product development process allow Nike to consistently launch innovative products.

Quality characteristics: High ROIC, EBIT expansion potential, and untapped growth

Despite its recent troubles, Nike’s history says that the company is a high quality company that has grown its revenue by 7% annualised since 2009 and maintained its market leading position. Historically, Nike has been very well run in terms of stable operating margin and an interesting growth profile. But supply chain issues since 2018 and the pandemic has eroded its previous stability and the company has clearly missed strategic boats when it comes to women and high growth markets such as Latin America and Asia Pacific.

Nike’s EBIT margin ended at 12.3% in FY24 which is below its margin levels from FY10 to FY19. While currently a weakness it is also here the upside lies. If Nike can fix its supply chain and distribution then it can maybe push EBIT margin back to the 13.5-14% range and unlock significant shareholder value.

As readers of our previous notes on quality companies will know we believe return on invested capital (ROIC) is an important measure of quality. In its FY24, Nike delivered a ROIC of 24.5% which is very high and easily puts Nike in the top 20% of companies globally on delivering high returns on its capital. As the chart below shows, its weighted average cost of capital (WACC) is around 10%, so even with its recent setbacks, Nike is a high quality company that delivers shareholder value.

A good and simple yardstick for quality is outperformance relative to global equities. Nike delivered significant outperformance for decades and from mid-2014 to late 2021 the stock was a champion of the market. Since then the stock is down 54% and the stock has now underperformed global equities over the past 10 years. Nike shares are up 118% compared to 144% for the MSCI World over the same period. The share price performance shows why Nike has become an interesting investment case to consider for investors. If Nike can execute on improving its EBIT margin, fix its distribution channels, improve its brand, and regain relevance with women then Nike may return to a strong stock market performer again.

Key risks: New markets, new competitors, brand, and omnichannel

There are always many different risks to consider as an investor. In Nike’s case, we believe there are four key risks to consider.

  1. New markets – Nike saw significant growth in Greater China from 2013 to 2021, but this growth adventure has come to an abrupt end and the risk is that the rising tensions between the US and China will continue to make it difficult for Nike to grow fast in China. Its Asia Pacific and Latin America segment has a smaller share of revenue compared to 2018 which is a warning signal given these markets so grow in relative share and not shrink.

  2. New competition – Adidas’s success with its Samba models is creating competitive issues for Nike in the short-term and in China a competitor such as ANTA Sports is taking market share. The industry is generally very competitive and other key competitors are Under Armour and Puma. As we stated in the section about its business, Nike seems to have lost the women segment with Lululemon growing fast among women and has grown the business from $1.6bn in FY14to $9.8bn in the last 12 months.

  3. Brand – Nike’s brand is one of its key competitive advantages and thus also the key risk for investors. Its decision to lean into political debates might have hurt its brand among some segments of the population and its clear lack of offerings to offset the threat from Adidas’ Samba shoes is painting a picture of a company that is losing it a bit on innovation.

  4. Omnichannel – Nike’s push of its own direct online channel went too far according to the CEO. There are many reasons for why Nike got blinded but one of them was likely a too high weight on profitability over long-term customer experience, balance distribution and brand awareness. Nike is trying to correct its mistake but its soured relationships with retail partners may be a drag on growth in the medium term.

What defines a quality company?

Quality companies can be defined in many different ways just like value. MSCI, which is world’s largest equity index provider, has defined it using three fundamental variables return on equity, debt to equity, and earnings variability. This definition makes sense because it can be applied to all companies regardless of which sector they are part of. The definition puts emphasis on profitability relative to the deployed equity, leverage ratio (less debt leverage relative to equity is good), and finally the predictability of the business with less variance in earnings being a good thing. In our past equity research we have also found that the lower earnings variability a company has the higher its valuation becomes, so this is a quality marker.

In our equity research note Top quality companies and how to decode their traits we focused on return on invested capital (ROIC) relative to the cost of capital (WACC) as the key measure to identify quality. Next we explained, that around half of those companies with the highest ROIC see their ROIC falling from the top to outside the top over three years due to competition or changing technologies. This is the quality trap that investors need to avoid. It is about finding enduring quality. The “7 Powers” framework is a good approach to analyse whether a company has enduring characteristics or not. Finally, a company can have a stable spread in ROIC minus WACC with a ROIC not in the absolute top and still be a phenomenal stock for shareholders. All it requires is that the business can invest a lot into the business. Historically, Walmart was exactly such a case.

The interesting thing about researching quality companies is that you cannot put it all into a formula. You must apply discretionary thinking about the business, its products, the company’s strategy, the industry drivers, technologies strengthening or weakening the business, because in the end the big returns about changes in expectations for the company.

Previous analyses of quality companies

The list below highlights our previous analyses of quality companies.

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.