Nike Cost Of Capital
Graduate School of Business Administration
University
Version
2.0 of Virginia
UVA-F-1353
Version 2.0
Nike, Inc.: Cost of Capital
On July 5, 2001, Kimi Ford, a portfolio manager at NorthPoint Group, a mutual fund management firm, pored over analyst write-ups of Nike, Inc., the athletic shoe manufacturer.
Nike’s share price had declined significantly from the start of the year. Kimi was considering buying some shares for the fund she managed, the NorthPoint Large-Cap Fund, which invested mostly in Fortune 500 companies with an emphasis on value investing. Its top holdings included
ExxonMobil, General Motors, McDonald’s, 3M and other large-cap, generally old-economy stocks. While the stock market declined over the last 18 months, NorthPoint Large-Cap had performed extremely well. In 2000, the fund earned a return of 20.7 percent even as the S&P
500 fell 10.1 percent. The fund’s year-to-date returns at the end of June, 2001 stood at 6.4 percent versus the S&P 500’s minus 7.3 percent.
Only a week ago, on June 28, 2001, Nike held an analysts’ meeting to disclose its fiscal year 2001 results1. However, the meeting had another purpose: Nike management wanted to communicate a strategy for revitalizing the company. Since 1997, Nike’s revenues had plateaued at around $9 billion, while net income had fallen from almost $800 million to $580 million (see Exhibit 1). Nike’s market share in U.S. athletic shoes had fallen from 48 percent in
1997 to 42 percent in 2000.2 In addition, recent supply-chain issues and the adverse effect of a strong dollar had negatively affected revenue.
At the meeting, management revealed plans to address both top-line growth and operating performance. To boost revenue, the company would develop more athletic shoe products in the mid-priced segment3 – a segment that it had overlooked in recent years. Nike also planned to push its apparel line, which, under the recent leadership of industry veteran
Mindy Grossman4 had performed extremely well. On the
University
Version
2.0 of Virginia
UVA-F-1353
Version 2.0
Nike, Inc.: Cost of Capital
On July 5, 2001, Kimi Ford, a portfolio manager at NorthPoint Group, a mutual fund management firm, pored over analyst write-ups of Nike, Inc., the athletic shoe manufacturer.
Nike’s share price had declined significantly from the start of the year. Kimi was considering buying some shares for the fund she managed, the NorthPoint Large-Cap Fund, which invested mostly in Fortune 500 companies with an emphasis on value investing. Its top holdings included
ExxonMobil, General Motors, McDonald’s, 3M and other large-cap, generally old-economy stocks. While the stock market declined over the last 18 months, NorthPoint Large-Cap had performed extremely well. In 2000, the fund earned a return of 20.7 percent even as the S&P
500 fell 10.1 percent. The fund’s year-to-date returns at the end of June, 2001 stood at 6.4 percent versus the S&P 500’s minus 7.3 percent.
Only a week ago, on June 28, 2001, Nike held an analysts’ meeting to disclose its fiscal year 2001 results1. However, the meeting had another purpose: Nike management wanted to communicate a strategy for revitalizing the company. Since 1997, Nike’s revenues had plateaued at around $9 billion, while net income had fallen from almost $800 million to $580 million (see Exhibit 1). Nike’s market share in U.S. athletic shoes had fallen from 48 percent in
1997 to 42 percent in 2000.2 In addition, recent supply-chain issues and the adverse effect of a strong dollar had negatively affected revenue.
At the meeting, management revealed plans to address both top-line growth and operating performance. To boost revenue, the company would develop more athletic shoe products in the mid-priced segment3 – a segment that it had overlooked in recent years. Nike also planned to push its apparel line, which, under the recent leadership of industry veteran
Mindy Grossman4 had performed extremely well. On the