JP Tramontana, William Philip Brand III

Business Description Nike is the largest retailer of athletic footwear and apparel in the world. Retails through third party retail stores, Nike owned stores, as well as online. Owns several brands Cole Haan Converse Umbro Hurley Nike Golf

Business Description (continued) 262 Nike Factory Stores 60 Nike Stores159 Cole Haan Stores 35 Converse Stores15 NIKETOWN Stores10 Hurley Stores

Revenue Breakdown

Revenue by Geography

Insider-Institutional Ownership

F2Q09 Results Record revenue of $4bn, up 6% YOY. Global footwear up 7% Global apparel up 6% Futures orders up 6% in USA Revenue in Europe up 4% Futures orders slightly down Emerging markets revenue up 21% Revenue in Asia up 17% Continued strong growth out of China, where revenues and futures were up 27% and 25% respectively. Americas revenue up 23%, futures up 26% USA revenue down 1%, Some margin pressure to increasing input costs.

YTD 2009 Interpreted

Strategy for Macro Environment Nike intends to actively manage inventory and reduce inventory levels. Management has indicated that they intend to cut costs and keep the growth of SG&A to “low-single- digit rate or less.” Hiring freeze, company wide reductions in travel and meetings. So far, management hinted at modest promotions primarily in Europe.

Porter’s 5 Forces – Athletic Retail/Apparel

Buyer Power (Low) Buyers in this industry are extremely fragmented. High degree of brand equity has historically made buyers less price sensitive. Nike owns a lot of retail stores; this lessens the power of third party retailers.

Supplier Power – (Low) Firms typically contract manufacturers over seas. There are tons of manufacturers competing for contracts. Allows firms to exhibit significant influence over suppliers. Single suppliers don’t provide a substantial amount of product to these companies. Raw materials are readily available.

Threat of Entry – (Low) High degree of brand equity and loyal customers make it hard for new firms to gain market share. Highly competitive industry Difficult for firms to obtain capital to buy fixed assets needed and establish distribution network. Advertising/Marketing new products also very expensive.

Threat of Substitutes – (None) No pure substitutes for athletic footwear and apparel. Very little threat of technological innovation producing substitutes.

Rivalry – (High) Several dominate firms in the industry competing intensely for market share. Swings in consumer preferences increase competition to stay on top of trends. Very low consumer switching costs.

Strengths/Core Competencies NKE has an incredibly strong global brand. This is critical especially in a weakening global economy With a strong revenue stream, NKE is able to contract the most popular athletes for endorsements Helps keep the margins fat Nike has no factories so it does not tie up cash in manufacturing labor and plants Futures ordering system allows NKE to actively manage inventory Geographically diversified, which has helped NKE maintain strong revenues Able to leverage high global market share to its advantage Very strong financial position

Weaknesses To grow in the USA in the future, NKE will need to continue to gain market share/grow inorganically. Very large amount of NKE revenue comes from USA footwear market (~23%) which is highly competitive and saturated. NKE will be vulnerable if it looses market share.

Opportunities Nike has exposure to emerging markets and thus fantastic growth opportunities. Well positioned to take advantage of consumer shift to healthier lifestyles. As the retail industry continues to falter, NKE continues to expand and gain market share. NKE will be well positioned in the future

Threats The footwear and greater retail industry has become increasingly competitive. Nike must maintain its brand equity and continue to anticipate fashion trends. Inventory buildup Inventories up 9% YOY in Q2. Increased pressure on margins due to Nike-owned retail expansion. Forex Translation Continued Economic Downturn Delayed Purchases Trading down

Inventory Management

Margin Management

Room for Growth Dominate presence in many emerging economies. Emerging economies rev. up 21% YOY Q2. Argentina, Russia, China, Brazil, Mexico Strong growth from established economies. Canada up 10% YOY Japan up 7% YOY Market share gain in the US 3% gain in share Q2 YOY

Industry Comps

Nike vs. Comparable Companies

Beta and WACC

Valuation

Valuation – Base Case

Sensitivity Analysis #2 Severe and prolonged macro slump

Catalysts Overall macro recovery and increase in disposable spending. Continued gain in market share. Share repurchases. Continued expansion in high growth markets such as China, Brazil and Argentina.

Thesis: BUY Extremely unique company with many irreplicable competitive advantages Industry leading company Undervalued even given conservative assumptions Robust financial position Strong growth opportunities

Q&A…