Nike shows it can stay ahead of the competition

Taking Stock

Your Money

October 23, 2005|By ANDREW LECKEY | ANDREW LECKEY,TRIBUNE MEDIA SERVICES

What does the future look like for my shares of Nike Inc.?

- J.T., via the Internet

This global company, which commands about 37 percent of the athletic footwear market, is fast on its feet.

The day 15-year-old golf prodigy Michelle Wie turned professional, she received a four-year contract from Nike that will pay her up to $5 million annually. Her youth and intent to compete in some men's events should help Nike Golf invigorate a lackluster golf market.

Fancy footwork is required to stay ahead of fierce competition. German sportswearmaker Adidas-Salomon AG has received U.S. regulatory approval for its $3.8 billion takeover of Reebok International Ltd., scheduled to be completed in the first half of next year.

That combination will have an estimated 30 percent of the world's athletic shoe market. In addition, Reebok's acquisition of The Hockey Co. last year gave it the lead over the Nike Bauer Hockey subsidiary in sales of hockey apparel and equipment.

Nonetheless, the famous Nike brand and swoosh logo gives it great reach and allows it to charge premium prices. It is, for example, the top-selling brand in China. With a $200 million U.S. media advertising budget last year, Nike shows no signs of relinquishing sales leadership.

Amid continued market anxiety about the outlook for consumer spending, Nike Class B (NKE) shares are down 10 percent this year, after gains of 32 percent last year and 54 percent in 2003.

Chairman Phil Knight, who started the firm by selling track shoes out of his car trunk in 1964, owns a quarter of its Class B common stock. William Perez of S.C. Johnson was named president and chief executive late last year.

Net income rose 32 percent and revenue rose 8 percent in its recent fiscal first quarter on strong U.S. sales of styles such as Air Jordan. Expiration of quotas on imported apparel this year has given manufacturers greater flexibility on where clothing can be made. But about half of Nike sales are overseas in 160 countries, making it susceptible to currency fluctuations.

The consensus Wall Street recommendation on Nike is a "buy," according to Thomson Financial. That consists of six "strong buys," seven "buys" and four "holds."

Earnings are expected to rise 17 percent this fiscal year versus 10 percent expected for the apparel, footwear and accessories industry. Next year's projected increase of 10 percent is in line with its peers. The five-year annualized growth rate forecast is 14 percent, versus 11 percent industrywide.

In June 1999, we opened Education Individual Retirement Accounts for our children in Janus Twenty Fund. What are its prospects?

- S.A., via the Internet

It should not be the primary holding for your children's education money because there's too much potential for volatility.

Even though this fund owns 37 stock names rather than 20 as its name implies, the concentrated portfolio can be hit hard whenever several positions misfire. It performs badly in bear markets.

The $10 billion Janus Twenty Fund (JAVLX) rose 15 percent during the past 12 months to rank in the top 10 percent of large growth funds, while its three-year annualized return of 17 percent puts it in the upper 12 percent of its peers.

Currently closed to new investors, Janus Twenty does offer positives such as a low, 0.89 annual expense ratio and an experienced portfolio manager.

"Janus Twenty is for an aggressive growth investor and should be a very small portion of your overall portfolio, not a core holding," said Gareth Lyons, analyst with Morningstar Inc. in Chicago.

Andrew Leckey writes for Tribune Media Services.

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