Nike Inc.’s addition to the Dow Jones industrial average is a testament to the company’s ability to shrug off hard times and transcend its U.S. origins, making its swoosh logo known from Beijing to Buenos Aires.
The world’s largest maker of sporting goods will join the 30-member gauge when the market opens on Monday, Sept. 23, along with Goldman Sachs Group Inc. and Visa Inc. They are replacing Bank of America Corp., Hewlett-Packard Co. and Alcoa.
Nike has transformed itself from a shoe company founded for $1,000 in 1965 by a former runner named Phil Knight and his coach into a global behemoth with 48,000 employees and sales of $25 billion.
While Nike is struggling to re-ignite growth in China and offset rising labor costs, it has caught up with athletic company Adidas in soccer, pushed into wearable technology and deployed sports figures from basketball players LeBron James of Akron and Kobe Bryant to soccer star Cristiano Ronaldo to sell merchandise around the world.
“I often describe them as a marketing company that makes shoes,” said Matt Powell, an analyst for researcher SportsOneSource, who has followed Nike for more than a decade.
Nike shares have gained about 30 percent this year to reach an all-time high, compared with an 18 percent gain for the Standard & Poor’s 500 index.
Many enterprises of Nike’s size and age are mature businesses, their best days behind them. Yet Chief Executive Officer Mark Parker, who started out as a shoe designer before becoming CEO in 2006, sells Nike to investors as a growth company. While the financial crisis crushed sales in 2009, Nike has turned in 10 percent compound annual sales growth in the past three years and it expects those gains to continue and for sales to reach as much as $30 billion in 2015.
Nike has had some missteps along the way. Revenue is declining in China, once one of the company’s fastest-growing markets, after Nike expanded too quickly.
Such fashion misses aren’t unheard of in the U.S, where apparel sales have flagged lately.
“The majority of athletic footwear is bought for fashion purposes and that’s the big risk here,” said Brian Yarbrough, an analyst with Edward Jones & Co. in St. Louis.
Rising labor costs in Asia are also weighing on profit. Gross margin, the percentage of sales left after costs of goods sold, has declined for eight of the past 10 quarters. The company has responded by raising prices, which it can pull off because of its enduring brand strength.
Nike’s growth is largely two-pronged: pushing into a new sport or taking share from competitors in an established business. Since it’s a force in every major sport, there are few opportunities for branching out into new categories that will have a substantial impact on sales, so Nike mainly focuses on expanding an existing unit.
Nike caught up in the soccer market, after flailing in the 1990s.
Adidas, based in Germany, had dominated since the 1950s with other European brands such as Puma SE. Nike didn’t really get serious about building a legitimate soccer business until the 2000s, when it started spending lavishly on endorsement deals. Since then, Nike has essentially drawn even with Adidas in soccer with sales reaching $1.9 billion last fiscal year.
Soccer gave Nike legitimacy. Now the company generates about 60 percent of revenue outside its home market.