Nike Inc. (NYSE:NKE) is the world’s largest sporting goods company by a number of measures, and NKE stock is one of the largest discretionary plays on Wall Street. So, it goes without saying that even modest news at Nike can tell us a lot about consumer tastes.
Well, NKE stock shocked many today with news that Nike Golf is about to stop selling golf equipment. The company will still keep its apparel line, but let’s be honest … golf shirts aren’t related to the sport any more than polo shirts are related to horses and mallets.
And what that news means, unsurprisingly, is that the world’s largest brand in sport has decided that golf is pretty much a niche product.
The Nike golf news is shocking to fans of the sport, to partners like Tiger Woods and Rory McElroy, and to NKE stock holders worried the company could be in the twilight of its previous dominance.
Is NKE Stock on the Defensive?
Those who have watched falling golf participation rates and seen financial woes at many courses know the score. Golf is in decline, and it’s unsurprising golf equipment sales would be, too.
However, even if golf is a smaller sport in viewership and participation, it is a highly lucrative one — both because of the high cost of equipment, as well as the attractive demographics of those interested in the sport. There’s a reason golf sponsors tend to be luxury cars, expensive watches and financial services firms.
For Nike stock to give up on this segment is a bit of a shocker, and can mean only one of two things:
- Nike believes the sport is slowly dying and will never recover
- NKE stock is playing defense instead of growing, and is focused on the short-term
The first item is disturbing for fans of the game that are worried their local course may eventually go belly up, or that The Masters will no longer be must-see TV.
The second item is disturbing for NKE stock holders, who are worried the $90 billion brand has run out of momentum. After all, shares of Nike are down 5% in the last 12 months vs. a 4% gain for the S&P 500, and its latest earnings report just signaled sales growth continues to slow.
It’s fine for a company to give up on a money-losing segment. But given the high profile of its Nike Golf arm with some of the biggest stars in the game, past and present, it almost smacks of desperation.
Consider that Callaway Golf Co (NYSE:ELY) is up 7% today on the news — presumably on the notion it will gobble up market share ceded by Nike Golf. Clearly, there is some opportunity here for someone, judging by this … so why can’t NKE stock cash in instead of its competitors?
NKE stock holders should watch the company carefully to see if this is really a sports giant looking to the future, or just a mega-cap company looking to juice numbers in the short-term by any means necessary.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.
