Is Northwest shoe behemoth Nike (NYSE: NKE) starting to feel the sting of the economic crisis? It certainly appears that way with the company announcing that it will cut 1,750 jobs, or roughly 5% of its total work force. The cuts are the largest in the company's history, and roughly 500 of the positions will be eliminated from Nike's Oregon headquarters, which employs more than 3,000. A majority of these cuts will occur over the next week.Nike is making the move in hopes of cutting costs and boosting competitiveness, which I will address in a moment. Back in February, Nike hinted that a review of its operations would result in a 4% cut to the firm's staff. Furthermore, the athletic apparel and footwear firm has cut production at Chinese and Vietnamese factories, cut marketing spending, and has reorganized its global business into six geographically based groups. All of these moves have been made to help the company deal with the current economic slowdown and its impact on the consumer.
Nike's warnings were not lost on Sterne Agee, whose analysts noted, "We recognize the allure of Nike's best of breed status, robust cash flow ... and U.S. share gains, but believe there are meaningful headwinds that will pressure sales, margins and earnings."
Furthermore, our own Joseph Lazzaro threw in his two cents about the company on May 12. Lazzaro noted that the $50 level is very important for Nike, and it appears that this round-number level is going to hold as support, especially with Nike's 10-week moving average in place as support. The last time the equity finished a week below this trendline was the middle of March.
Bottom line, Nike is a solid investing opportunity if you don't mind taking a bit of a risk. As Lazzaro noted, a move to the $38 low from earlier this year shouldn't happen, thanks especially to the technical support resting under the stock. With the company's strong brand recognition, I feel this is an excellent time to maximize profit potential from Nike's stock (of course, $38 was better, but $50 isn't too bad when the stock's all-time high is in the $70 region).
Along with the cost-cutting moves, the shoemaker has taken, let's not forget the media marketing giant that is Nike. Yes, the company is lowering its marketing expenses, but let's not forget that we are in the midst of baseball season, the NBA playoffs, and Tiger Woods assault on golf courses across the world. Watch ESPN's SportsCenter some night, try and tally how many athletes you see wearing the Nike brand, then consider that free advertising for the company.
Despite what some may see as upsetting news, I truly think Nike is positioned to weather the current economic storm.
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Reader Comments (Page 1 of 1)
5-15-2009 @ 11:16AM
Iridium said...
Nike will increase profit not by increasing sales but by reducing costs. By firing employees and cutting the quality of components in thier products. For that they will be rewarded.
Isn't there something wrong with that kind of thinking. Even with increased profit the company is actually failing.
I know I won't change the minds of those who only make money if the little symbol has a green arrow next to it. All I can say it that your profession is destroying the world by focusing on manipulated numbers rather than the true economy.
The stock market is truly the devil's playground.