Analysts at Citi Research held a sports apparel battle royale featuring the top three contenders in the space: Nike (NKE), Growth Seeker holding Under Armour (UA) and Adidas. Nike was the last company standing, vanquishing Under Armour and Adidas, thanks to its global top-line growth opportunities and consistent market-share gains.
Nike outscored its rivals on the judges' cards despite the major strides both companies have made in eating into Nike's industry-leading market share. This is the second consecutive year Citi ran its head-to-head matchup and the second consecutive year Nike has won.
This despite the fact that Nike's shares have had an inconsistent performance this year, falling more than 8% year to date. While this year's trophy went to the same winner, the competition between the companies is getting stiffer, according to Citi.
"Recently the debate on who should be the winner over the next 12 months has intensified. Adidas' business appears to have stabilized and is currently seeing a resurgence in the US market, while UA has created a solid footwear business on the back of [NBA star] Stephen Curry's success over the past year," analysts wrote. "At the same time, the overall growth rate of Nike's business is being called into question by investors given competitors' recent success and some weakness in parts of Nike's basketball business."
The firm sees all three brands benefitting from global category growth over the next several years, but Nike is best positioned to take advantage of those gains thanks to its consistently strong sales growth and global market share leadership position.
"Nike offers gross margin expansion opportunity through innovation in its supply chain, the ability to leverage costs from double-digit sales growth, and continued shareholder returns through dividends and repurchases. While other brands have started to demonstrate increasing traction in the US and international markets, Nike has succeeded in growing its market share through a successful category offense, which the company is now in the process of implementing in Europe and China," today's analyst note read.
That isn't to say that there aren't flaws in Nike's game that could use some ironing out. The firm noted that key investor concerns include the deceleration of the company's North America futures and high near-term inventories in the U.S. that will take several quarters to work through. But those flaws were not enough to knock Nike from the top spot.
"While we acknowledge that not everything is humming along as it once was at Nike, recent concerns do not necessarily derail the long-term thesis or multiple, in our view, given Nike's continued strong global growth rates (including North America still a healthy +DD)," the note concluded.
Nike and Under Armour were both down on weak volume intraday Tuesday, with the stocks falling 0.5% and 0.8% respectively.