Risks and Conclusion - Nike (NKE) Stock Analysis - Part 7

Risks
Thinking long term, I don't see any major risks with NIKE. Here are some comments on some common concerns.

1. Global Recession: there are two sides of the story. First, if the global recession continues long enough, it will eventually slow down the growth of NKE, or worse, wiping out the profits. Second, the bear market itself simply refuses to reward reasonable/high evaluations even NKE manages to turn in impressive numbers, on the other hand, it punishes harder if the company misses. Thus a good earning from NKE may not boost the price, while a bad one may drive it down big. The positive side, there is nothing specific or unique to NKE only, pretty much the same situation for every company.

2. Design Misstep: if you are familiar with apparel companies such as American Eagle (AEO), Abercrombie and Fitch (ANF), etc... you know the risks internal to this type of fashion player. From time to time, they will have some kind of design missteps, releasing products that deviate from the fashion trend of its targeted customer, thus excessive inventory, deeper discount, a poor quarter and lower stock price, then recalibrate and another round starts. This also applies to NKE. They may release products that the customer totally lack interest. The positive side, they are big, they never rely on one product line or one design concept for one quarter; their mixed product offerings should be able to mitigate the risks well. Further, bottom line, NKE is never a pure fashion player, it is a sportswear company. They can always use the sports stars' influence to offset a poor offering, or a mediocre design.

3. Inventory Pressure: A few days ago, Goldman gave cautious note on athletic apparel, footwear sector, citing the inventory may create near-term headwinds. Overall, it is a valid concern though NKE seems to have some edge over its competitors:
- If you haven't visited nikestore.com, check it once. I was surprised how well it was constructed. Actually more are more revenues are generated from its website, and more importantly, it provides an interface with the end consumers directly, this should give NKE some sort of 'prediction' power, second, they run a lot of secret codes, online coupons, displaying a very flexible pricing schema. Feels they can be very efficient in dealing with inventories.
- Nike runs a "futures" ordering program. From its 10K, "We make substantial use of our "futures" ordering program, which allows retailers to order five to six months in advance of delivery with the commitment that their orders will be delivered within a set time period at a fixed price. In fiscal year 2008, 86 percent of our U.S. wholesale footwear shipments (excluding Cole Haan, Converse, Exeter Brands Group, Hurley, NIKE Golf, Umbro, and NIKE Bauer Hockey) were made under the futures program, compared to 94 percent in fiscal 2007 and 90 percent in fiscal 2006." Five to six months should provide enough buffer time for inventory adjustment. This system sounds very helpful to offset the order volatility.

4. Strategy and Management philosophy: as discussed earlier, innovation, fashion, branding are the cornerstones of Nike's business model, and behind this model, I see the consistent strategy, culture and management philosophy. All these, sounds abstract, but are the ultimate force that drives NKE's success. I'd keep a close eyes on NIKE's management change. The serious deviation from existing strategy and philosophy might be the only thing that may hurt Nike big given the superiority and dominance it has been enjoying today.

Conclusion
Start accumulating shares. As of 2/28/2009, the close price is 41.53, it may go lower below 40, if so, buy more shares.