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Should We Listen To Kevin Durant NBA superstar Kevin Durant has been hitting on all cylinders this year. He made the decision to leave the Oklahoma City Thunder in the summer of 2016 to join the Golden State Warriors. The decision was met with disgust from many NBA fans, particularly Oklahoma City Thunder fans. However, at the end of the 2017 NBA season, Kevin Durant was standing on the podium at center court receiving the NBA Championship Trophy as well as the NBA Finals MVP Trophy. In the end, Kevin Durant was right. At the end of August, Kevin Durant was quoted saying kids these days only prefer to play in Nike. "For me, I didn't want to go to Maryland. I didn't want to stay home. I wanted to nike internship see what was outside that area. I don't think a lot of kids, to be honest, they don't choose Maryland unless they play in an Under Armour system coming up. Shoe companies have a real, real big influence on where these kids go. So, nobody wants to play in Under Armours, I'm sorry. Like, the top kids because they all play Nike." Kevin Durant Kevin Durant made the right move to Golden State, is he right about Nike (NYSE:NKE)? Is Nike still what athletes look to for performance? Let's dive into the company's recent performance and also take a look at where it is headed moving forward to see if we should join team Nike. Business Overview Nike, Inc. is a sportswear company that designs, develops, markets, and sells footwear, apparel, equipment, and accessories across the globe. NKE is the largest seller of athletic footwear and apparel in the world. The company operates under four brands: Nike, Jordan, Hurley, and Converse. Nike operates within seven main divisions which include North America, Western Europe, Central Eastern Europe, China, Japan, Emerging Markets, and Global Brands Corporate. Looking back over the past five years, China only made up 9.7% of total revenues compared to 12.3% in 2017. This region has obviously been a major focus point of growth for management. The potential in China is still enormous. North America has grown from 40.9% to 44.3% during that same time span, as the company continues to grow revenues in this region, even with new competitors entering the market. Within the divisions, the majority of revenue is broken out by three main revenue streams: Footwear, Apparel, and Equipment. As you can see, footwear is by far the main driver of revenue followed by apparel. As such, when stories in the news come out about new sports shoes not gaining traction with consumers, investors of Nike tend to get concerned. Or when shoe retailers such as Finish Line (NASDAQ:FINL) or Foot Locker (NYSE:FL) discuss slower footwear sales, Nike investors again have cause for concern. However, the results of these retailers should not be a main focus of Nike investors, as this is just a few of many outlets Nike sells products through. YTD, NKE's stock is up 6% compared to FL and FINL being down 48% and 45%, respectively. The last point I would like to make in the Business Overview section is related to e commerce. As I am sure many of you have heard, Amazon (NASDAQ:AMZN) is taking over the world or at least that is what many investors have been led to believe. Is it impacting retail? Absolutely! Is it changing the retail environment? Yes! However, it is not going to take over and replace every retailer, which is just not going to happen. Companies are reshaping how they do retail by ensuring their e commerce component is up to par. Today's consumer still wants to shop in person, but they also want the convenience of ordering items online. Nike's products are already sold on Amazon through licensed and unlicensed third party vendors. However, during the Q4 earnings call, CEO Mark Parker confirmed both Nike and Amazon have a partnership to sell their products directly, which will eliminate the middleman and help the company gain greater control over how its products are marketed. Parker mentioned that a "limited" selection of Nike products would be for sale at first. This seems like a likely route for products that are selling slowly or a path for the company to trim inventory. It does not sound like new products will be available through Amazon. As you can see in the charts above, sales have increased for both wholesale and direct to consumer (e commerce) over the past six years. However, the pace at which the company is ramping up e commerce sales has been trending up, with the percentage of sales through e commerce nearly tripling since 2012. As of 2017, wholesale revenues make up 72% of total revenues, whereas direct to consumer revenues make up 28%. This will continue to be a main focus of the company going forward. Recent Financial Results Nike recently filed its full year 2017 results back in July. The company posted 2017 revenues of $34.4 billion, a 6% increase from the prior year. The company has grown at an average rate of 8% over the past five years. It posted operating income of $4.7 billion during 2017, a 5.5% increase from the prior year. Over the past five years, operating income has increased an average of 9% per year. Net income for 2017 was $4.2 billion, a 13% increase over the prior year. During the same five year span, net income has increased an average of 14% per year. As you can see, the company has continued to grow not only the top line but also the bottom line, which is the sign of a quality growth company. However, when you look closer, the concern lies in the slowing of growth. Investors usually do not mind paying a premium PE for a quality growth company, but when a company goes from being a double digit growth company to just a mid single digit growth company, red flags are raised. Based on the chart below, revenues, net income, and operating income have all been on the decline since peaking in 2015. Does this trend continue or is the company just going through a rough two years in which the retail sector has been going through numerous changes? Now just looking at the chart above may appear as a short term negative, but let's take a look at the EPS growth. During 2017, the company posted EPS of $2.51, which was a 16% increase from prior year. Over the past five years, the company has grown earnings 16% per year on average, which is in line with the current year EPS. Turning to efficiency, the company recorded its largest return on assets in the last five years by posting an ROA of 18% in 2017. Company management has increased the ROA each of the last five years, which is a testament to the quality of management. Gross margins came in at 44.6% for 2017, down from the five year high posted in 2016 of 46.2%. Taking a quick look at the company's balance sheet, it currently has a TL/A ratio of 46.7%, which is the highest in the past six years. This could be a cause for concern going forward, but considering the company has a long term debt rating of AA and A1 from Standard Poor's and Moody's, respectively, I am not too concerned. A large part of the increase in the TL/A ratio is related to the $1.5 billion of senior notes the company issued during the year. The company's current ratio sits at 2.93, which is the highest since 2013, so from a liquidity perspective, the company is doing fine. Looking Ahead According to NBA Star Kevin Durant, top athletes only want to play in Nike. Nike shareholders hope he is right. Looking at where Nike stacks up against two of its largest competitors, adidas (OTCQX:ADDYY) and Under Armour (NYSE:UAA), is a good start. Source: NPD Group According to the footwear industry results as of May 2017, adidas has nearly doubled its footwear market share while Nike has seen both its home brand and Jordan brand fall year over year. After Nike, Jordan (Nike owned), and adidas, the next closest competitors are Skechers (NYSE:SKX) (6.3%), New Balance (3.7%), Converse (3.6%, Nike owned), and Under Armour (2.4%).