Question

Instructions You are the CFO of an up-and-coming athletic company, which desires to someday become the #1 athletic company in the world. Strategically, the company uses Nike and Under Armour as their key competitor benchmarks. Your CEO is a big believer in learning from the competition and is requesting two things from you regarding Nike and Under Armour’s most recent annual reports: An Executive Summary and a brief Video Presentation of your findings.

NOTE: In order to complete this assignment, you will need to obtain each company’s MOST RECENT(2017) annual report (Nike and Under Armour). Create an executive summary you would feel comfortable turning in to your CEO or to Jack that is no more than 2 pages, single-spaced using 12-point Times New Roman font. You may also include an appendix with additional references, graphs, charts, and tables for additional support if needed.

1. Competitor Strategies • Identify and explain one key strategy from each company that the company explicitly discussed in the annual report.

2. Net Income Margins • What are the after-tax net income margins (aka, net profit margin) for both companies? • How do they compare? • Who achieves the higher net income margin? Why?

Answer 1

Competitor’s Strategies

Nike

What makes Nike special? – It’s Culture.

In this digital era, consumers want service with speed and more personal touch from Brands. Consumers are driving reinvention of economies of bricks and mortar retail. This landscape is complex but plays to Nike’s strength and has led Nike to reimagine their entire business process.

Nike’s entire team is sprinting toward 3 milestones: 2X Innovation, 2X Speed, 2X Direct.

Nike is now focussed on doubling their cadence and impact of innovation in both performance and sportswear. They are accelerating the time it takes for a new platform to reach the market. And at the same time they are focusing on scale.

They have also taken steps in delivering cushioning revolution which fulfil the dream of walking on nothing but air.

Closer to Consumers: As part of Triple Double, Nike is strengthening direct connections with consumers through digital, membership, personalisation, and brand experience which allow them to serve athletes in every phase of life.

Speed Win: To exceed consumer’s expectations, Nike is doubling their speed throughout their supply chain from product insight to consumer delivery.

Accelerating Human Potential: Nike focuses on:

To exceed consumer’s expectation, not just meet them

To grow the whole market place, not just obsess market share.

To sharpen the process, not just do what’s worked before.

To fuel the promising Nike’s Women Business.

Financial Performance:

Revenue Growth – 6.10% as compared to 2016.

Return on Invested Capital – 16.84% as compared to 2016.

Stock performance: Nike: 107% vs S&P: 105%.

EPS Performance- 16.02% as compared to 2016.

Under Armour

The brand’s moisture-wicking fabrications are engineered in many different designs and styles for wear in nearly every climate to provide a performance alternative to traditional products.

The Under Armour Connected Fitness platform powers the world’s largest digital health and fitness community and its strategy is focused on engaging with these consumers and increasing awareness and sales of their products.

Financial highlights for full year 2017 as compared to the prior year period include:

Net revenues increased 3%.

Wholesale revenue decreased 3% and Direct-to-Consumer revenues increased 14%.

Apparel, footwear and accessories revenue increased 2%, 3% and 10%, respectively.

Revenue in our North America segment decreased 5%.

Revenue in our Asia-Pacific, EMEA and Latin America segments grew 61%, 42% and 28%, respectively, with 11% growth in our Connected Fitness segment.

Selling, general and administrative expense increased 14%.

Gross margin decreased 140 basis points.

The increase in net sales was driven primarily by:

Apparel unit sales growth in multiple categories led by men’s and women’s training and golf; and

Accessories unit sales growth in multiple categories led by men’s training; and

Footwear unit sales growth in multiple categories led by running.

NET PROFIT MARGIN

NIKE

Net Profit Margin = 12.34%

UNDER ARMOUR

Net Profit Margin = (1.0%)

Nike achieves higher income because they focus on:

– Delivering innovative, premium products that command higher prices while maintaining a balanced price-to-value equation for consumers;

– Reducing product costs through a continued focus on manufacturing efficiency, product design and innovation;

– Making our supply chain a competitive advantage by investing in new technologies that increase automation, help reduce waste and have long term potential to increase both customization of our products and speed to market;

– Driving growth in our higher gross margin DTC business, led by digital commerce, as part of an integrated marketplace growth strategy across our DTC and wholesale operations.