Athletic shoe giant Nike rates a `buy,' despite an odd choice for chief executive

Taking Stock

Your Money

December 12, 2004|By ANDREW LECKEY

What's the current outlook for Nike Inc.? I'm a long-term investor in the company.

-- B.S., via the Internet

This brand-name firm that controls 40 percent of the $17 billion athletic footwear market features outstanding financial results and a quirky choice for a new chief executive officer.

Profits were up a surprising 25 percent in the most recent quarter, pushed by its strongest U.S. orders in seven years for sneakers and athletic apparel. Behind the impressive showing were improvement in dealings with the Foot Locker retail chain and the increased visibility that the Summer Olympics gave its shoes.

Besides the shoes bearing its name, the company owns Converse sneakers, Nike Golf, Bauer Hockey, Cole Haan casual shoes, Hurley International skateboard equipment and Exeter Brands value-priced athletic apparel.

Shares of Nike are up 22 percent this year, after last year's 56 percent gain. It recently raised its dividend 25 percent.

Nike founder Philip H. Knight, 66, announced that at the end of December he will turn his titles of president and chief executive over to outsider William D. Perez, 57, the CEO of S.C. Johnson & Sons Inc., a consumer products company. Knight, who attempted to retire a decade ago but came back when sales slipped, retains the title of chairman.

It had been assumed that top Nike executives were in line for Knight's position. The naming of someone from a company that makes Drano and Windex raises the risk that he may not fit into Nike's sports culture or be able to continue its recent successes.

Perez, who runs marathons, does have solid management and international marketing experience. His ability to sell a portfolio of consumer brands should also help Nike's expanded product line.

But not everything is coming up roses for Nike.

While the sexual assault case against NBA star Kobe Bryant was dismissed, his signing to a multimillion-dollar endorsement contract just before he was accused was not fortuitous timing. Bryant's image is hardly that of former spokesman Michael Jordan.

Since half of its sales are international, Nike is always subject to currency fluctuations. Its business is also competitive and relatively stagnant.

Shares of Nike receive a consensus "buy" rating from analysts, according to the Thomson First Call research firm in Boston. That consists of six "strong buys," seven "buys" and two "holds."

Earnings are expected to rise 20 percent this year and 12 percent next year. The company's projected five-year annualized growth rate of 13 percent compares with the 14 percent predicted for the footwear industry.

What's the difference between a money-market account and a money-market fund? Why go with one over the other?

-- R.B., via the Internet

They are similar parking lots for your money.

Money-market funds, offered by brokerages and mutual fund families, are stable investments but are not federally insured. Money-market accounts, offered by banks to compete with money-market funds, are insured by the Federal Deposit Insurance Corp. up to $100,000 per account.

Both invest in short-term, high-quality obligations such as U.S. Treasury bills, certificates of deposit and commercial paper, so that they aren't buffeted by interest rate moves.

Andrew Leckey is a Tribune Media Services columnist. E-mail him at yourmoney@tribune.com.

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