It's Nike vs. Adidas in the World Cup Semis

NEW YORK (TheStreet) -- The World Cup semifinals are now set and, in no surprise, Nike (NKE) will be facing Adidas (ADDYY) for world domination.

Both soccer championship matches feature the two companies going head to head for a spot in the finals on July 13. Nike will be on the field with Brazil when the host country takes on an Adidas-kitted Germany. The other side of the bracket features Argentina versus the Swoosh-styled team from the Netherlands.

The two sports apparel companies account for $45 billion dollars and nearly 30% of the market share of the sporting world. When you take a closer look at the soccer market, that number shoots up to a combined 70%.

Adidas won't report on its earnings until August, a month after the tournament ends, but reports have pegged the German company's investment in the tournament at $70 million dollars. Nike reported its annual numbers right in the middle of the tournament. Total revenue had increased 11% to $7.4 billion dollars for the fiscal year. Its fastest-growing division, however, was soccer which rose 18% to $2.3 billion, from $1.9 billion in 2013.

In a recent conference call to analysts, Nike brand president Trevor Edwards said, "Our football (soccer) business has never been stronger."

>>Nike Spending on World Cup to Widen Appeal of Sports Apparel

>>The World Cup Is an Absolute Money Pit

The approach taken by both companies differs, however. Adidas is the official sponsor of FIFA's World Cup, with its name all over the tournament and the official game ball they have provided since 1970 and will through the 2030 tournament. While Nike has no official sanctioning from soccer's ruling body, the company has an edge in the number of players and teams they have sponsorship deals with.

On the opposite side of the spectrum is Lotto Sport Italia. The small private company rode the backs of a surprising Costa Rica team into the quarterfinals. While behemoths like Nike and Adidas have dominated the marketing of the World Cup and keep blank uniforms on hand in case a previously little-known player puts his name on the map during the cup, Lotto had trouble keeping up with demand.

"We are now having trouble organizing some fast production to let everyone have this shirt that will become a memory of a historic achievement," Lotto President Andrea Tomat told Reuters.

Of the top 10 players in the world, Nike suits up six of them while Adidas has just three. (Puma rounds out the category with French star Thierry Henry.) Adidas' advantage lies in having arguably the world's biggest soccer star, Argentinean forward Lionel Messi.

Aside from the back-breaking left-footed goal he delivered against Iran, Messi's mark on this year's tournament has been typified by the opportunities his mere presence on the pitch can create. For Adidas, Messi is more than just a presence.

A tour of Adidas headquarters in Herzogenaurach, Germany, illustrates that fact. The only people with more of a profile are Adolph "Adi" Dassler, the shoe cobbler who founded of the company in the 1920s, and Dassler's son Horst, who pioneered the marriage of sports and marketing when he began getting teams to promote his product by giving it away for free to teams in the 1950s.

Opportunities for Adidas to be at the center of the sports universe are few and far between, despite its ranking just behind Nike. The Portland, Ore., company can absorb the loss on the field but can quickly turn around and refocus its efforts on basketball, football and baseball where it has a stronghold on the market that simply Adidas doesn't.

In a perfect world, Adidas would most like to see a Germany-Argentina final match. While it would clearly favor a win by Germany, the sight of Messi hoisting the World Cup trophy while wearing his Adidas emblazoned uniform and the resulting sales would do more for Adidas than anything else.

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

TheStreet Ratings team rates NIKE INC as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate NIKE INC (NKE) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, reasonable valuation levels and solid stock price performance. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • NKE's revenue growth has slightly outpaced the industry average of 8.4%. Since the same quarter one year prior, revenues rose by 10.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • NKE's debt-to-equity ratio is very low at 0.13 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, NKE has a quick ratio of 1.71, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Textiles, Apparel & Luxury Goods industry and the overall market, NIKE INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.

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