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Nike Circumvents Adidas Obstacles By Commandeering Its Strategies, But Is It Enough?

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Nike Circumvents Adidas Obstacles By Commandeering Its Strategies, But Is It Enough?
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Nike Inc (NYSE: NKE) has publicly addressed its struggles after announcing a “reset” that will see the sportswear giant layoff 2 percent of its workforce.

The Adidas Advantage

It appears Nike’s strategy is in direct response to adidas AG (ADR) (NYSE: ADDYY). Not only is Adidas stealing market share and experiencing rapid growth in North America, but Nike seems to be tearing a page out of the rival's playbook.

The company plans to put its focus on 12 key markets that are expected to 80 percent of projected sales by 2020, a move mimicking Adidas’ key cities initiative.

Analyst's Response

JPMorgan doesn’t see North American revenues getting better anytime soon, however, and has downgraded shares of Nike to a Neutral rating from Outperform and lowered FY 2018 EPS estimates to $2.40.

“Based on our work, we see the N. America top-line picture likely worse before better. (We are) modeling flat N/A revenues in FY18 driven by a mid-single digit wholesale decline given 8–9 percent exposure to the consolidating brick and mortar landscape, shelf space loss at key partners and multi-year shift from performance to lifestyle,” said JPMorgan analyst Matthew R. Boss.

JPMorgan also lowered its price target on Nike from $61 to $58.

Boss is encouraged by Nike’s reset plans and forward-thinking initiatives, particularly its ManREV 3D shoe printing initiative, but acknowledged that change takes time (check out Boss' track record).

Nike has been likened to a battleship, that when changing direction, takes some time to turn around and get back on course.

The future of footwear will require adapting to a rapidly changing consumer style preference and will ultimately mean more customized products, faster speed to market and smaller more targeted releases.

At time of publication, shares of Nike were down 3.38 percent at $51.11.

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Sep 2012

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