How Much Nike Could Gain With A Pacific Trade Deal (Investor's Business Daily)

May 8, 2015


 View Enlarged Image

As President Obama visits Nike (NYSE:NKE) headquarters Friday to campaign for the Trans-Pacific Partnership trade deal, the Air Jordan maker stands to gain 27 cents in per-share earnings this year if the pact is enacted, says one analyst.

The U.S. and 11 countries — including Japan, Australia, Canada, Singapore and Vietnam — are nearing the end of negotiations.

The TPP would ease tariffs for a number of sectors, and Macquarie analyst Laurent Vasilescu estimates the footwear industry pays $2.7 billion in shoe tariffs.

“We are voicing that this may be the opportunity to accumulate Nike shares ahead of this potential landmark free-trade agreement,” he wrote in a Wednesday note, projecting that the sportswear giant could gain 100 basis points in gross margin benefit from the free-trade pact.

In 2014, Nike’s gross margin expanded by 120 basis points to 44.8%, primarily due to higher average selling prices and growth in the higher-margin direct-to-consumer business.

While Nike makes most of its shoes and apparel overseas, it said Friday that footwear tariff relief would allow it to ramp up development of new advanced manufacturing methods and a domestic supply chain to support the making of Nike goods stateside.

The trade deal would also let the company create 10,000 U.S. jobs in manufacturing and engineering, plus thousands of construction jobs and indirect supply chain and service jobs, it said.

Vasilescu said the company could reinvest the savings in R&D and marketing, bring down prices or flow the benefits to the bottom line.

Shares were up 1.3% in the stock market today.

According to Vasilescu, other apparel companies that could benefit from the TPP are VF Corp. (NYSE:VFC), Columbia Sportswear (NASDAQ:COLM) and Wolverine World Wide (NYSE:WWW).

Follow Elaine Low on Twitter: @IBD_ELow.