Pay Attention to Nike’s Secret Weapon

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By Jacob Maslow

Nike sneakers for menThe Nike (NYSE:NKE) stock got hit hard by the strong US dollar. Its revenue growth was lower than expectations due to the persistent strength of the greenback. Still, the Nike stock is doing quite well, thanks to the global power of its brand.

If you leave aside foreign exchange distortions, Nike gross revenue went up 13%. Although, Nike exceeded earnings estimates by growing 19%, but it appears that Nike stock is definitely a stock worth buying. However, I would suggest that the reason why this stock is worth paying attention to is the phenomenal growth of its Converse brand.

Nike bought out Converse close to 12 years ago for only 305 million dollars. Now, Converse contributed 538 million dollars to Nike’s bottom-line. Expect this to grow because the Nike brand will continue to gain new followers. This is due to the legal victory Nike scored last October.

Nike will be able to file trademark infringement cases against 31 domestic and foreign companies that infringe on key elements of the design of the Chuck Taylored shoes. This is going to dry up the supply of Converse look alike which would drive more demand. Another key reason is that the fact that the Converse Chuck Taylored design has always had a strong counter culture or subculture appeal. It’s a kind of trendy anti-trendy look that many Millenials find appealing.

The big risk to Nike’s Converse brand is obvious. Just as current tastes may make certain brands hot, tastes can be quite fickle. Brands go out of fashion fairly regularly. Nike should focus on repositioning its Chuck Taylor line for constant reinvention while retaining certain classic features.

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