Aug 27, 2020
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About this Deal
Nike’s stock (NYSE: NKE) has gained 13% since early February after the WHO declared the Coronavirus a global health emergency, while Skechers’ stock (NYSE: SKX) has lost around 22% of its value over the same time period. The lockdown in various parts of the world has hurt the apparel industry worldwide. Moreover, fading consumer demand, reduced discretionary spending, and stay-at-home orders resulting in stores remaining closed continue to adversely impact the apparel market. However, Nike is uniquely placed in the apparel industry and we believe Nike stock has the edge over Skechers and is likely to fare better over the coming months because of its stronger brand presence, geographical diversification, robust digital network, brand innovation, and a diversified business model as compared to Skechers.
Our conclusion is based on our detailed dashboard analysis, ‘Nike Looks Cheap vs. Skechers U.S.A. ’ wherein we compare trends in key metrics for the two apparel companies over the years to determine their relative valuations under the current circumstances.
Skechers derives roughly 45% of its revenues from North America, while Nike makes less than 40% of its sales from the region.
Moreover, Nike has a strong foothold in China, which is one of the fastest-growing apparel markets in the world. Although Skechers is also growing in China, its presence is limited as compared to that of Nike’s.
Further, Nike has a stronger balance sheet, with the company having a comfortable $8.8 billion in cash reserves as per the latest report, while Skechers’ cash reserves stood at around $1.5 billion.
Additionally, Nike has a wider product portfolio, which ranges from footwear and apparel to eyewear, accessories, and even equipment. On the other hand, Skechers is primarily a footwear dominated brand.
Finally, Nike has a robust digital network. Nike’s digital sales increased 75 percent in the Q4 2020 (ending May) led by double-digit increases across all geographies- accounting for approximately 30% of total revenue.
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