Notice that run by

Nike

(NKE) - Get Report

?

Jumping
Shoe maker's recent rally

Its shares have once again become a hot commodity, driven by demand for its highly touted Shox sneakers, which now vie with Air Jordan for top billing. Since late October, shares are up more than 50%, more than doubling their 52-week low of last February and trading around $53.

After years in the doldrums, Nike's recent success may be only a taste of what's to come. The athletic footwear industry has begun rebounding, following a painful period of consolidation at the retail level. Meanwhile, Nike has benefited from the launch of several successful products that have nothing to do with shoes: watches, an MP3 player and golf balls emblazoned with Tiger Woods' name.

Guys, We're Just Doing It

While the company hasn't released sales figures for Shox, there is evidence that retailers are having trouble keeping the $143-a-pair shoes on their shelves. For 2001, the sneaker is the No. 5 selling shoe in the country, and the most expensive of that group, according to figures provided by the industry trade group

Sports Trend Info

. For Nike's other high-profile sneaker, the Air Jordan, sales tend to drop off after four weeks because the company continually rolls out new models. But sales for Shox haven't let up after more than two months on the market, says Jeff Atkinson, vice president of Sports Trend Info.

Holding Pattern
Nike shares cooling since early '90s rally

"The Shox is an item they are going to keep in their line for a while," says Atkinson. "It would have been one of the top shoes of 2000 if it hadn't been around for only seven weeks. And sales are not just in one part of the country, but strong across the board."

Many believe that Nike's revival isn't a temporary blip, and that the athletic footwear industry has overcome many of the problems that befell it a few years ago. Nike stock, a highflier in the early 1990s, began a steady march downward in 1997. A variety of factors were blamed, including a glut of retail space and Michael Jordan's retirement. What happened? Well, Tiger Woods has proved a suitable replacement -- Woods signed an endorsement deal with Nike last year reportedly worth $100 million, said to be the richest in sports history -- and retail space has contracted. And just this month Nike inked an exclusive deal with department store giant

Nordstrom

(JWN) - Get Report

to distribute a line of Tiger Woods golf apparel.

Warming Trend

Not only Nike has seen renewed good times of late: so have

Reebok

( RBK) and retailers

Venator

(Z) - Get Report

(operator of Foot Locker and Champs, and formerly Woolworths) and

Footstar

(FTS) - Get Report

, all of which have enjoyed rising stock prices.

Says Phil Seligman, an analyst at

Standard & Poors Equity Group

: "There was a time when the industry was down. Now it is not so much that it is growing as strongly as before, but coming off a low point. The growth is off a period of weakness. Also, the advent of the so-called 'casual lifestyle' and the trend of casual attire in the workplace has helped the industry."

In addition, one of the scourges affecting much of the retail industry is that the nation has too many stores -- think the

Gap

(GPS) - Get Report

,

Abercrombie & Fitch

(ANF) - Get Report

and

American Eagle Outfitters

( AEOS). But the sneaker industry caught on early, and began consolidating excess retail space before most other retailers, say analysts.

"The industry is improving," says Robert Toomey, an analyst at

Dain Rauscher Wessels

. "We are coming to the end of a period of retail consolidation." Toomey has a strong buy rating on Nike, and his firm does not have an underwriting relationship with the sneaker giant.

Nike has also been helped of late by a strengthening of the euro -- about 23%, or more than $500 million, of its revenue comes from Europe -- and surprisingly strong apparel sales. In the latest quarter, apparel sales grew after 10 consecutive quarters of decline.

Indeed, much of Nike's growth lies in its international and apparel businesses, not its core U.S. shoe business. The company is expected to lose 2 percentage points in U.S. market share in 2001, dropping from 42% to 40%, mainly on weakness in its midpriced offerings, says analyst John Shanley, of

Wells Fargo Van Kasper

. However, growth potential in its foreign markets, a booming apparel business and its dominance of the U.S. market for high-priced sneakers more than compensate for this, he says. (Shanley recently reiterated his buy rating for Nike and set a $65 price target, or about 24 times his fiscal 2002 earnings estimate. His firm does not do underwriting for Nike.)

The Emperor

Still, with the economy slowing and Nike shares trading close to its 52-week high, there is some risk that the stock may pause for a while. One analyst recently downgraded the stock, strictly because of valuation. "Fundamentally, the brand remains the predominant athletic label and we still believe the company can meet our estimates," wrote Morgan Stanley Dean Witter analyst Josephine Esquivel, in a recent note. "However, athletic apparel remains weak and we remain cautious over the near-term retail environment, so we see limited opportunity for an upside earnings surprise." (She has a neutral rating and her firm has not recently underwritten for Nike.)

But many economists are beginning to predict a consumer spending

rebound by the second half of 2001, and Nike is considered durable enough to withstand a slowing economy without too many bruises, say other analysts.

"People will always wear sneakers," says Seligman, the S&P analyst. "I wouldn't call them completely defensive, but they are more defensive than others.

In a recession people won't go without clothes."