Nike Inc.

(NYSE: NKE)
Consumers & Healthcare

December 16th, 2014

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Pitch Outline

Industry Overview & Macro Thesis

Company Overview

Investment Thesis I

Investment Thesis II

Investment Thesis III

Catalyst & Risks

Valuation

3
Global Athletics Industry

Industry Overview

- Globally, the market for sporting goods including apparel, equipment and footwear is estimated to be worth $310 billion
- Global footwear (including athletics, casual, fashion etc.) is projected to grow at an annualized rate of 7.3% to $175 billion by 2019
- The sports event market has outpaced GDP in nearly every country and is expected to continue to grow at a considerable rate into
the near future. More than 3 billion people watched at least a minute of the 2014 World Cup
- As the world of sport continues to become increasingly popular, sponsoring brands and related companies gain further exposure
and opportunity to capture percentage of wallet
- The U.S market for athletic footwear in 2013 was approximately $13.8 billion or roughly 19% of the $75 billion global market for
athletic footwear
- China’s sportswear market is generating mid-single digit SSS during Q3 14 and margins improved 200bp YoY to 41.9%
- Europe has exhibited positive trends in footwear with growth in the mid-single digits but margins remain depressed in the region
presenting an attractive opportunity for margin expansion

The consumer appears to be gravitating towards lifestyle running, as opposed to performance running. Lifestyle running shoes are not
designed with true track, trail or road performance in mind, but rather with appealing silhouettes

Global Sports Market ($Billions of USD) Athletic Footwear Breakdown by Type

30
100 24.8

Percentage of Market Share

23.6
90 25
Sports Market Revenue

80 20 16.2
70
15
60 8.8
10 7.5 7.3
50
4.4 3.8 3.6
40 5
30 0
20

Other
Aerobic
Running

Work/Saftey
Casual Athletic

Cold/All Weather

Basketball

Walking
Cross Training
10
0
2005 2009 2013 2017E

Source: AT Kearney, UBS, IBIS World, NDP Group, Credit Suisse 4

Preferred Apparel Brand Timeline: Upper-Income Teens

Spring 2001 3.5 years 3.5 years 2.5 years 4 years

Spring 2005

Spring 2011
Fall 2001

Fall 2008
Over the last year, micro surveys indicate that Nike is the preferred fashion brand for upper- and average-income teens and young adults
which speaks to the momentum in the health, wellness and fitness segment

Preferred Apparel Brands – Running

Overall Males Females
Rank Fall 2014 % Rank Fall 2014 % Rank Fall 2014 %
1 Nike 37% 1 Nike 38% 1 Nike 35%
2 lululemon 22% 2 Asics 10% lululemon 35%
3 Under Armour 9% Under Armour 10% 3 Under Armour 9%
4 Asics 5% 4 Adidas 6% 4 Brooks 5%
Adidas 5% Pearl Izumi 6% 5 Adidas 3%
Brooks 5% 6 New Balance 5% 6 Asics 2%
7 Pearl Izumi 3% 7 Brooks 3% Athleta 2%
8 New Balance 3% 8 11 other brands tied 2% Moving Comfort 2%
9 Athleta 1% 9 CW-X 1%
10 Moving Comfort 1%

Sources: Piper Jaffray 5

Company Overview I

Nike Overview

- Nike, Inc. designs, develops, markets and sells athletic apparel, equipment footwear and accessories to men, women and children
worldwide
- Nike has approximately 645 company owned stores where it distributes its products but also sells merchandise through numerous
large retailers and wholesalers
- Nike’s products are focused in 7 categories: action sports equipment, men’s and women’s training equipment, NIKE Sportswear,
soccer, basketball and running
- The company operates in over 120 countries worldwide and is headquartered in Oregon, USA. It has approximately 40,000
employees around the world
- Nike reported FY2014 revenues of $27.8B up 11% over FY2013 and net income of $2.7B which was an increase of 10% YoY

Nike is the largest sportswear company in the world. They are the number one preferred footwear and apparel performance brand with a
47% market share in footwear and a 40% market share in apparel

Segmented Revenue Geographic Revenue Breakdown

6% 1%
4%
5% North America

10%
Emeriging Markets &
Footwear Other
30%
Apparel 43% Western Europe

Equipment
China
17%
Global Brand Divisions
64%
Central & Eastren
Europe
Japan
21%

Sources: UBS, Macquarie Research, Credit Suisse, Piper Jaffray 6

Company Overview II

Recent Innovation Nike’s Subsidiaries

- Nike is known for its commitment to creating innovative Converse is a American shoe company that
and industry leading products, and was ranked the #1 primarily retails sports wear and lifestyle
most innovative company of 2013 footwear. It also operates under the names One
Star, Chuck Taylor All Star and Jack Purcell
- In 2012, it developed the FuelBand which tracks physical
activities, steps taken, calories burned and allows you to
visualize your progress while competing with friends Hurley is a global manufacturer and retailer of
- Flyknit Racer, which was developed in 2013, are feather apparel, surf equipment, accessories and
light shoes that use a reduced number of upper overlays. services. It was acquired by Nike in 2002
This helps to significantly reduce production costs and
makes the shoes more comfortable for long-term wear
Jordan brand designs and produces shoes and
athletic clothing. The brand was originally
Nike’s continued product innovation has helped it to produced for Michael Jordan; however, was
differentiate from competitors made available for public sale in 2001

Management Nike Global Footwear Market share

Mark Parker, President & CEO
• Competitive runner for Penn State who joined Nike as a 4%
4%
footwear designer in 1979 5%
• Over 30 years of experience in management roles at Nike
Nike
34%
Philip H. Knight, Chariman Other
• Has been a director of the company since 1968 and is one 19% Adidas
of Nike’s co-founder’s
Asics
• Previous experience as a CPA with PWC
Puma
Don Blair, EVP & CFO VFC
• CFO of Nike since 1990, prior to holding various finance
and planning roles at PepsiCo.
• Holds an MBA from The Wharton School and is a CPA 30%

Sources: UBS, Macquarie Research, Credit Suisse, Piper Jaffray, 7

 Investment Thesis I: Direct to Consumer (DTC) Growth Acceleration

DTC Expansion

- Nike’s high margin DTC business has been steadily growing over the past 5 years as Nike begins to focus more on its relationships
with customers and less on wholesaling. Management has indicated they intend to continue investing in its DTC business to reach a
revenue goal of $5B in 2015 (a year earlier than anticipated) and $8B by 2017
- DTC margins are significantly higher than any of Nike’s other businesses meaning that its gross margin will continue to
expand as DTC becomes a larger percentage of Nike’s total sales
- Nike has made significant investments in its e-commerce platform to make it easier for its customers to purchase products from
anywhere in the world
- Continued development of the e-commerce platform will help Nike capitalize on the shift towards online channels. In
2013, Nike’s e-commerce platform helped drive DTC growth of 30% in the footwear and apparel segments
- North America currently accounts for 60% of DTC revenues. In order double emerging market DTC revenues over the next four
years, Nike is working to increase store count and finalize an e-commerce platform in its secondary markets

Continued growth of Nike’s high margin DTC business will be driven by increased SSS growth, new store openings in large cities, factory
store openings and development of its e-commerce platform

DTC Growth as a Percentage of Total Sales DTC Revenues by Region

NKE’s DTC growth as a percentage of sales is accelerating faster Geographic segmentation of Nike’s DTC revenues
than its competitors
$4,000

30.0%
26.8% $3,000
26.0%
22.8% 23.2%
$2,000
22.0%

18.0% 16.4% $1,000

14.0% $0
Q2 2011 Q4 2011 Q2 2012 Q4 2012 Q2 2013 Q4 2013 Q2 2014 2010 2012 2014 2016E
Nike (NKE) Under Armour (UA) International Western Europe North America
Sources: UBS, Macquarie Research, Credit Suisse, Piper Jaffray, 8
Investment Thesis II: Strong Financial Position

Cash Rich Balance Sheet & Capital Deployment

- Cash on Hand: Currently, Nike has approximately $4.6B in cash on its balance sheet. Management has indicated that this could be
used for acquisitions to further diversify its product offerings or for increased investments in its research and development
programs
- Free Cash Flow Generation: Nike is known for its impressive FCF generation. Over the next five years, free cash flow from
operations is expected to exceed $12B, allowing them more flexibility when looking at expansion opportunities or reducing debt.
Nike’s generated over $2.1B in free cash flow in 2013, whereas its competitor Under Armour, generated approximately $32MM
- Share repurchases: Nike is committed to repurchasing shares. In Q1 2015, the company repurchased 10.6MM shares, valued at
approximately $819MM ($77 per share). This is in line with its four year share buyback plan, where it will repurchase $8B shares
(commenced in 2013, and approximately $3.8B remains)
- Dividend Increases: Nike’s current quarterly dividend is $0.24 per share. Nike typically increases its dividend in December each
year, and it is expected that Nike will increase its dividend double digits this year as a result of strong performance

Nike’s unparalleled balance sheet and strong commitment to shareholder return makes it an attractive long-term investment

2014 FCF Yield Compared to Peers Dividend and Share Repurchases

$2,500
Median 3.0% $2,100
$2,000
$2,000 $1,814 $1,800

Capital Deployed ($B)

$1,674 $1,728

High 4.8% $1,500 $1,291

$1,115
$961
$1,000 $822
Low (3.5%) $703
$619
$500

NKE 3.8%
$0
2012 2013 2014 2015E 2016E 2017E
(4.0%) (2.0%) 0.0% 2.0% 4.0% 6.0%
Repurchases Dividends

Sources: UBS, Macquarie Research, Credit Suisse, Piper Jaffray, 9

Investment Thesis III: Dominant Global Player

Pricing Power & Exposure to Global Markets

- New Pricing Strategy: At the end of 2013, Nike introduced a new pricing strategy. This strategy has allowed it to increase ASP by
6% in 2014, at a time when the market has been under significant pricing pressure. This year Nike contributed 1.88pp to footwear
industry sales dollar growth
- Improved EPS Algorithm: It is important to note that these ASP increases are even more beneficial than initially foreseen. A recent
study of Nike’s EPS algorithm showed that a 1pp revenue growth for price has 2.2x the effect on EPS as 1pp revenue growth from
volume. This has allowed Nike to add 160bps to gross margins in 2013 and another 170bps in 2014
- Chinese Turnaround: Nike has begun to make a comeback in China. This has been driven by DTC and their new category offense
strategy. Revenues from China were up 20% in Q1 2015 due to these changes. The biggest take away is that only 50% of stores
have been reset to reflect these strategies, leaving huge potential for upcoming growth
- Chinese Manufacturing: Mainland Chinese labour costs have been rising at a rate of 20% YoY. Nike is ahead of others and has
already moved much of its production further south. They only have 20% of manufacturing in mainland China compared to an
industry average of 42%. This will give them an advantage in future years as Chinese manufacturing costs continue to rise

Nike’s clear pricing power advantage and growth opportunities will continue to drive earnings growth in upcoming years

Increasing ASP driving GM growth Nike ASP effect on Footwear Industry

Industry Growth 2013 YTD 2014 YTD
29 45.00% vs. Nike Growth YoY YoY
28
44.50% Industry Sales ($) $9,173 $9,300 $127 1.4%
27
Nike Sales ($) $5114 $5,439 $324 6.3%
Gross Margins

26
USD ($BB)

44.00% Contribution - Unit $156

25 Growth $168
24 43.50% Contribution - Nike
ASP
23
43.00% Conclusion:
22
21 42.50% Total Industry Sales Dollar Growth: $127
Contribution to Industry Growth YOY +1.4%
2012 2013 2014
Contribution to Industry from Nike ASP $168
Revenue Gross Margin
Contribution to Industry Growth YOY +1.8%

Sources: Morgan Stanley, UBS 10

Catalysts & Risks
Catalysts
– Acceleration in Chinese Futures:
– As Nike continues to expand in the Chinese
market, any acceleration in futures is likely to
be viewed very positively. Investors like the
Chinese's market due to the huge potential
for growth and any sign of increasing
presence in the region would increase share
value
– Potential Acquisition
– Nike has completed a successful string of
accretive acquisitions. Hurley continues to
outperform, Umbro has extended Nike’s
position to make it the biggest player in the
football (soccer) industry, and Converse is a
nearly $1B business. Nike’s strong balance
sheet present opportunities for potential
acquisitions and we believe that Nike would
be able to use those to drive earnings due to
an impressive track record
– Emerging Markets Expansion Driving Revenue
– Emerging markets made up $4 billion of
Nike’s revenue in 2014 and there is still huge
room for growth in these markets. As Nike
continues to differentiate from its
competitors, we see emerging markets as an
excellent place to do this
If Nike is able to expand its global brand while maintaining
the strong margins it is currently operating with we see
significant room for growth
Sources: Morgan Stanley, UBS
Risks
– Increasingly Competitive Landscape:
– As more and more competitors enter the
retail market it becomes more difficult for
Nike to differentiate. Under Armour is one of
the newer companies that could potentially
steal market share away from Nike,
particularly in untapped markets like China.
This competition is what is driving innovation
for Nike and it is important that they maintain
innovation moving forward.
– Change in Consumer Spending or Preferences
– Nike is at risk to both decreases in consumer
spending or changes in consumer preference.
However, it is currently outpacing the
industry in all growth metrics despite lower
consumer spending and has a track record of
innovating to meet customer performance
– Effective Mitigation of FX Fluctuations
– Nike is a company which has historically been
largely affected by foreign exchange
fluctuations. However, their trading company
which opened about two years ago has done
a remarkable job at mitigating the effect of
intra-quarter FX changes
If Nike is unable to adapt and maintain its place
at the head of athletic apparel and footwear industry, it risks
losing substantial profits to competitors
11
 Valuation I – DCF Analysis
Historical Period Projection Period
2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E
Revenue 19,014 20,862 24,128 25,133 27,799 31,301 34,623 37,617 40,349 42,111
Year over Year Growth % 9.7% 15.7% 4.2% 10.6% 12.6% 10.6% 8.6% 7.3% 4.4%
Direct Costs 10,214 11,354 13,657 14,279 15,353 17,327 19,112 20,689 22,111 22,951
% of Revenue 53.7% 54.4% 56.6% 56.8% 55.2% 55.4% 55.2% 55.0% 54.8% 54.5%
Gross Profit 8,800 9,508 10,471 11,034 12,446 13,973 15,511 16,928 18,238 19,161
Margin % 46.3% 45.6% 43.4% 43.9% 44.8% 44.6% 44.8% 45.0% 45.2% 45.5%
Total Selling and Adimn 6,326 6,693 7,079 7,796 8,766 9,844 10,733 11,511 12,266 12,718
% of Revenue 33.3% 32.1% 29.3% 31.0% 31.5% 31.4% 31.0% 30.6% 30.4% 30.2%
EBITDA 2,474 2,815 3,392 3,238 3,680 4,130 4,778 5,417 5,972 6,443
% of Revenue 13.0% 13.5% 14.1% 12.9% 13.2% 13.2% 13.8% 14.4% 14.8% 15.3%
Year over Year Growth % 13.8% 20.5% -4.5% 13.7% 12.2% 15.7% 13.4% 10.2% 7.9%
Less: Depreciation and Amortization 396 358 405 513 632 613 678 736 790 824
% of Revenue 2.1% 1.7% 1.7% 2.0% 2.3% 2.0% 2.0% 2.0% 2.0% 2.0%
EBIT 2,079 2,457 2,987 2,725 3,048 3,517 4,100 4,680 5,182 5,619
% of Revenue 10.9% 11.8% 12.4% 10.8% 11.0% 11.2% 11.8% 12.4% 12.8% 13.3%
Year over Year Growth % 18.2% 21.6% -8.8% 11.9% 15.4% 16.6% 14.2% 10.7% 8.4%
Less: Income Taxes 537 736 638 702 856 807 941 1,075 1,190 1,290
Net Operating Profit After Taxes 1,541 1,721 2,349 2,023 2,192 2,709 3,159 3,606 3,992 4,329
Year over Year Growth % 11.7% 36.5% -13.9% 8.4% 23.6% 16.6% 14.2% 10.7% 8.4%
Plus: Depreciation and Amortization 396 358 405 513 632 613 678 736 790 824
Less Capital Expenditures 432 563 598 880 897 924 970 1,018 1,069 1,069
% of Revenue 2.3% 2.7% 2.5% 3.5% 3.2% 3.0% 2.8% 2.7% 2.6% 2.5%
Less: Change in Net Working Capital (809) 651 1,123 (431) 710 460 548 494 451 291
Unlevered Free Cash Flow 2,314 865 1,033 2,087 1,217 1,938 2,318 2,830 3,262 3,793
Discount Period 0.5 1.5 2.5 3.5 4.5
Discount Factor 97.2% 91.7% 86.6% 81.8% 77.2%
Present Value of Unlevered Cash Flows 1,883 2,127 2,452 2,668 2,930

Revenue Breakdown
Historical Period Projection Period
2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E
Footwear 10,307 10,333 11,493 13,426 14,359 16,208 18,153 19,968 21,566 23,075 23,998
Year over Year Growth % 0.3% 11.2% 16.8% 6.9% 12.9% 12.0% 10.0% 8.0% 7.0% 4.0%
Apparel 5,245 5,037 5,475 6,333 6,820 8,109 9,244 10,354 11,389 12,243 12,855
Year over Year Growth % -4.0% 8.7% 15.7% 7.7% 18.9% 14.0% 12.0% 10.0% 7.5% 5%
Equipment 1,110 1,034 1,013 1,202 1,405 1,670 1,904 2,132 2,324 2,510 2,610
Year over Year Growth % -6.9% -2.0% 18.7% 16.9% 18.9% 14.0% 12.0% 9.0% 8.0% 4.0%
Global Brand Divisions & Other 2,514 2,611 2,881 3,167 2,549 1,812 2,000 2,169 2,338 2,521 2,647
Year over Year Growth % 3.8% 10.4% 9.9% -19.5% -28.9% 10.4% 8.5% 7.8% 7.8% 5%
Total Revenue 19,176 19,014 20,862 24,128 25,133 27,799 31,301 34,623 37,617 40,349 42,111

Source: CapIQ, Company Reports 12

Valuation II – DCF Output & Target Price

Discounted Cash Flow Calculations

Share Price Calculation Target Return
PV of UFCF 12,059 Current Share Price $96.17
Terminal Year Growth Rate 2.75%
Target Share Price $110.75
Discount Rate 5.91%
Equity Upside 15.16%
PV of Terminal Value 73,595
Enterprise Value 85,655
Dividend Yield 0.99%

Enterprise Value 85,655 12-Month Return 16.15%

Less: Total Debt 1,347
Plus: Cash and Cash Equivalents 11,105 Commentary & Assumptions
Implied Equity Value 95,413

 We broke down Revenue into the company’s four main

Shares Outstanding 862
operating divisions
Implied Share Price 110.75
 Revenue growth is on par with analyst estimates
WACC Calculation
 We used a 5 year average calculation to determine
Risk-Free Rate 2.32%
depreciation and amortization and net working capital line
Market Risk Premium 6.70%
items
Levered Beta 0.83
Cost of Equity 5.96%  We are projecting a share price of $110.75 which is slightly
higher than most analysts
Cost of Debt 4.50%
Tax Rate 22.96%
After Tax Cost of Debt 3.50%

Capital Structure
Debt 1.9%
Equity 98.1%
Total: 100.0%

WACC 5.9%

Sources: Capital IQ, Bloomberg

13
 Valuation I – Comparable Companies
Comparables
Consumers Sector
Company Name Market Enterprise EV / EBITDA Price / Earnings Net Debt / EBITDA EPS Growth 2014 EBITDA FCF Dividend
Discretionary Cap ($MM) Value ($MM) LTM 2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E ROE Margin Yield Yield
Consumer Discretionary
V.F. Corporation $31,388 $32,975 16.1x 15.7x 14.1x 24.3x 21.4x 0.8x 0.7x 3.4% 3.1% 22.5% 17.5% 2.7% 1.7%
Ralph Lauren Corporation $15,931 $15,517 11.3x 11.2x 10.1x 21.6x 18.8x (0.3x) (0.3x) 9.1% 8.5% 18.8% 18.3% 3.6% 1.0%
Michael Kors Holdings Limited $15,849 $14,837 11.6x 10.5x 9.0x 18.4x 15.8x (0.7x) (0.6x) 4.5% 4.2% 43.3% 36.3% 1.9% -
Under Armour, Inc. $14,709 $14,651 39.3x 35.0x 27.9x 76.7x 60.2x (0.1x) (0.1x) 1.1% 0.9% 16.6% 14.6% 0.4% -
Tiffany & Co. $13,462 $14,165 13.0x 12.7x 11.5x 24.9x 21.9x 0.6x 0.6x 4.7% 4.3% 6.4% 26.2% 2.0% 1.4%
Adidas AG $12,093 $12,300 10.7x 9.5x 8.7x 20.5x 18.1x 0.2x (0.4x) 0.0% 3.1% 10.7% 8.8% 3.8% 2.3%
Coach, Inc. $9,701 $8,963 6.9x 9.4x 8.5x 19.8x 18.2x (0.8x) (0.7x) 1.9% 1.9% 28.3% 20.3% 2.3% 3.6%
Lululemon Athletica Inc. $7,519 $6,793 15.0x 16.4x 14.5x 27.1x 23.6x (1.8x) (1.5x) 1.9% 1.8% 22.4% 24.7% 2.4% -
Skechers USA Inc. $3,058 $2,737 11.3x 15.7 14.4x 27.2x 23.9x (1.2x) (1.0x) 2.9% 3.6% 13.8% 12.9% 2.4% -
Columbia Sportswear Company $3,070 $2,902 12.6x 12.4x 11.1x 24.8x 19.8x (0.7x) (0.6x) 2.1% 1.8% 9.5% 11.9% 1.5% 1.3%
Mean $12,678 $12,584 14.8x 14.9x 13.0x 28.5x 24.2x (0.4x) (0.4x) 3.1% 3.3% 19.2% 19.2% 2.3% 1.9%
Median $12,777 $13,232 12.1x 12.6x 11.3x 24.6x 20.6x (0.5x) (0.5x) 2.5% 3.1% 17.7% 17.9% 2.3% 1.6%
Nike, Inc. $82,851 $79,619 17.9x 16.6x 14.8x 27.5x 24.0x (0.7x) (0.4x) 3.8% 3.6% 25.7% 16.7% 3.8% 1.1%

Commentary
– Nike trades relatively in line with peers on a Price/Earnings basis and at a premium on an EV/EBITDA basis. We believe that this
valuation gap is justified and will continue to exist due to Nike’s superior strategy execution and brand recognition
– NKE has one of the strongest FCF yields, and has a superior ROE to almost all of its comparable peers
– NKE issues a 1.1% dividend yield, and is one of the few companies in its peer group to do so

Analyst Target Price Analysis Share Price Sensitivity

QUIC $110.75 Terminal Growth Rate
BAML $110.00 2.25% 2.50% 2.75% 3.00% 3.25%
5.51% $ 107.73 $ 114.80 $ 123.14 $ 133.15 $ 145.38
Morgan Stanley $105.00
5.71% $ 102.97 $ 109.22 $ 116.53 $ 125.19 $ 135.61
WACC

Credit Suisse $100.00 5.91% $ 98.72 $ 104.30 $ 110.76 $ 118.33 $ 127.32

JP Morgan $100.00 6.11% $ 94.92 $ 99.92 $ 105.67 $ 112.34 $ 120.18
Macquarie $100.00 6.31% $ 91.49 $ 96.01 $ 101.15 $ 107.08 $ 113.98

Deutsche Bank $95.00

Sources: Capital IQ, Company Reports, Thomson One 14