Equity Research Paper: Navigating the Athletic Apparel Industry
- Pravriti Pal
- Nov 30, 2022
- 3 min read
Updated: Nov 28, 2023
Brandeis International Business School
Created Financial models and theories were applied to historical data (5 year) to evaluate financial performance of Nike,PVH,VF
Determine whether to invest or not use WACC(8%), Multiple Valuation( avg price- 95.4), and Dividend Policy ( avg 4.18)
Analyzed research data and concluded most critical factor was selling ( Market price 107.93) made project viable
Equity research is a vital tool for investors to make informed decisions. In this comprehensive analysis, we delve into the dynamic world of the athletic apparel industry, focusing on industry trends, market leaders, and financial performance. The selected companies for this study are giants in the field: Nike, PVH, and VF.
Industry Overview
Global Athletic Apparel Market
The athletic footwear and apparel industry, valued at $167.7 billion in 2018, is projected to reach $248.1 billion by 2026. Our analysis identifies key strategies focusing on superior product attributes, consumer connection, engagement, and effective sourcing and distribution.
Market Segments
Revenue from women's apparel surpasses men's and children's, with the U.S. women's apparel market alone generating over $133 billion. Emerging markets like China, Brazil, and India are quickly catching up in adopting sports apparel.
Leading Companies (Dec '22)
Nike, dominating the market at $84 billion in 2021, is a standout performer. LVMH is another major player, consistently ranking high with $367 billion in 2022.
Overview of Selected Companies
Nike
| PVH | VF |
|
|
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Financial Analysis
Horizontal Analysis
Profitability Ratios
- Nike: High gross profit margin (40%), but a significant drop in net profit margin (13%) due to high S&A costs.
- VFC: Similar to Nike with a 60% gross profit margin, but net profit margin is less than 10%, impacted by high SG&A and tax expenses.
- PVH: A consistent 60% gross profit margin, but a small fraction retained (4%) due to high SG&A costs, particularly in intangibles.
Efficiency Ratios
- Nike: Consistent performance except in 2020, where inventory turnover slowed due to the pandemic.
- VFC: Shows improvement in inventory turnover, 10 days faster than 2018.
- PVH: Exhibits an inverse dynamic, with exceptional performance in 2020.
Rate of Return Analysis
- Nike: Increasing ROE (20% to 40%) driven by improved profitability and increased financial leverage.
- VFC: ROE fluctuates, barely making profits in 2021 but showing growth in 2022.
- PVH: Unpredictable ROE, with negative values in 2021 but a strong performance in 2022.
Leverage Ratio
- Nike: Shifts from low leverage in 2018 to increased debt in 2020, impacting asset turnover.
Market Value Ratios
- EPS: Nike leads with consistent growth, while PVH faces a significant decline in 2021.
Vertical Analysis
Bankruptcy Probability
- Altman Z Score: Nike is in a strong financial position, while others face financial distress.
Stock Price Performance - Stock Index Prices: Nike outperforms, PVH and VFC show a downward slope compared to S&P500.
Valuation Analysis
Multiple Valuation Methods
- EV/EBITDA, EV/Revenue, P/E Ratios: Nike appears overpriced compared to industry averages.
- DCF Model: Future projections based on past performance.
Dividend Policy and Recent Strategic Changes
Nike's Dividend Policy - Steady growth over the past 15 years, with a consistent increase in dividends per share.
Recent Strategic Changes - Nike's shift to DTC, consumer direct offense, and e-commerce growth tactics.
Investment Thesis and Risks - Investment Thesis
A 'buy' recommendation for Nike due to its strong financial position, consistent dividend growth, and strategic shifts toward DTC and e-commerce.
Risks - Industry competition, changing consumer preferences, and potential economic downturns.
References:
- Yahoo Finance. (2022, December 6). V.F. Corporation (VFC) valuation measures & financial statistics. [Yahoo! Finance](https://finance.yahoo.com/quote/VFC/key-statistics?p=VFC)
- Statista. (n.d.). Apparel market worldwide. [Statista](https://www.statista.com/topics/5091/apparel-market-worldwide/#topicHeader__wrapper)
- Globe Newswire. (2022, April 22). Worldwide Apparel Industry Report to 2031. [Globe Newswire](https://www.globenewswire.com/en/news-release/2022/04/22/2427162/28124/en/605-4-Billion-Worldwide-Apparel-Industry-Report-to-2031-Identify-Growth-Segments-for-Investment.html)
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