Nike Inc. Makes Emerging Markets Top Priority (NKE, MCD, KO, DPZ)

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Top Nike Inc. (NYSE: NKE) executive Mark Parker talked about his ambitious goal to boost global sales 40% by 2015 recently in a Wall Street Journal interview. If Nike can meet that goal, it will become yet another iconic American company like Domino’s Pizza Inc. (NYSE: DPZ), The Coca-Cola Company (NYSE: KO) and McDonald’s Corp. (NYSE: MCD) that is putting emerging markets ahead of the U.S. on its priority list.

So what’s Nike’s strategy? Simple: Focus on China, Brazil and India and connect with these emerging markets’ emerging middle classes. NKE stock has already made big strides in its global sales, but the really interesting part is how the sports icon plans to increase its international presence: Without brands that bear the trademark swoosh logo.

According to Parker, with the World Cup looming next month it’s the perfect opportunity for Nike to make its move. NKE stock is planning expand the company’s soccer label via the Nike-owned brand Umbro to take on rival Adidas in Europe.

Nike is looking to build on strong momentum in the past year or so. Shares are up about 5% as of early Monday morning as the market opened higher, bringing the stock’s year-to-date returns to about 13% while the market is up by only 3% since January 1. Shares are trading at a new all-time high of about $75, considerably above the high $60s pricing we saw before the financial crisis.

So can will this global focus mean even bigger success for Nike, or is it a gamble that could cause the stock to give back what it has gained recently?

It remains to be seen whether Nike can hit its numbers, but the move certainly seems to be wise for the global sports giant. Take a good look at three other iconic American companies that are in a similar position with mature brands in the U.S.: Domino’s Pizza (DPZ), Coca-Cola (KO) and McDonald’s (MCD).

Domino’s pizza now gets almost half of its  DPZ stock pizza sales from global sales. About 55% of Domino’s $5.6 billion in sales last year were in the United States, and that international same-store sales have increased for 64 consecutive quarters (that’s 16 straight years). Coke’s first quarter earnings showed that the company is clearly focusing on global sales as well. North American Coca-Cola sales dropped 1% while beverage sales worldwide were up 5% thanks to sharp increases in China, India and Latin America. As for Mickey D’s, the results are similar — biggest reason McDonald’s earnings impressed Wall Street in February was because international sales growth offset a decline in U.S. same-store sales. The Golden Arches saw a decline of 0.7% in the U.S., offset by a brisk growth rate of 4.3% in Asia, Africa, Europe and the Middle East.

The fact is that the biggest companies in the world have mature U.S. operations these days and don’t have much more growth potential. For instance, with nearly 14,000 American locations, McDonald’s doesn’t have many more profitable places to set up shop — and continued competition from other fast-food chains makes it difficult to see dramatic growth. The solution is obvious: look overseas.

With a market cap of $36 billion and one of the most recognizable names and logos in all of sports, Nike surely isn’t going to cede its dominant position any time soon. And as Coca-Cola, Domino’s and McDonald’s have shown, it can actually be in the best interest of a company to lose a step or two in the American marketplace if it means making even bigger strides abroad.

Nike has topped Wall Street expectations for each of the past four quarters, and could see significant growth if it makes the right moves into the international marketplace. The only question is whether the company will move fast enough to offset any declines in the American marketplace as it refocuses its sales strategy to China, Brazil and India.

Tell us what you think here.

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      Article printed from InvestorPlace Media, https://investorplace.com/2010/05/nike-inc-nke-emerging-markets-mcdonalds-mcd-coca-cola-ko-dominos-pizza-dpz/.

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