The Nike and McDonald’s Economy

Nike (NYSE: NKE) is one of the few companies that posted strong profits for the past quarter and offered optimistic guidance going forward. It joins McDonald’s (NYSE: MCD) as one of the world’s largest consumer-based companies that continues to be an unqualified success even as the economy deteriorates.

Nike revenue rose 18% in the past quarter to $6.1 billion. Earnings were up 19% to $1.36 per share. Most important, worldwide future orders were up 16%. “As of the end of the quarter, worldwide futures orders for NIKE Brand athletic footwear and apparel, scheduled for delivery from September 2011 through January 2012, totaled $8.5 billion,” the company announced. Nike is not slowing down.

Nike’s stock trades near $90, close to its 52-week high. It has remained near that high because people around the world are willing to pay $60 for a pair of athletic shoes. Nike’s image helps those sales. Its brand is one of the most valuable in the world, according to BrandZ. The research firm puts it at $13.9 billion, up 10% from last year. Nike has used its brands to successfully market its products as the best in the market. And, in a world in which the economy is troubled and may be getting worse, $60 is an amount that many people can afford.

Few other multinationals have done as well with the consumer as Nike has in the past quarter. The most notable is McDonald’s, which also sells a premier brand at an affordable price. McDonald’s shares have defied the market drop because its sales around the world have stayed strong. McDonald’s brand is valued at $81 billion, an increase of 23%. It has built that brand value on the back of $2 premium coffee and $5 meals.

Price will become an increasingly important consideration as the world economy enters what appears to be another recession. Affordable goods and services sometimes flourish in this kind of environment. The ability to do that is often based on a reputations that take decades to build. And champagne at a beer price.

Douglas A. McIntyre