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On September 4, 2003 Nike acquired Converse for $315 million - two years after the latter filed for bankruptcy.Converse had annual sales of just over $200 million at the time of acquisition.Fast forward 16 years to Nike's fiscal year 2019 - Converse sales have ballooned to nearly $2 billion.Converse has been a perfect fit to the footwear and athletic apparel behemoth. The brand has not only diversified the company's portfolio but also added a new dimension to the company's footwear division.
In this dashboard, we analyze why Nike's acquisition of Converse has been a great deal.
Nike Paid Converse $315 Million In 2003, Implying A Revenue Multiple of 1.6x
P/S Multiple Paid By Nike [ A / B ]
Price Paid By Nike [ A ]
Converse Revenue [ B ]
Nike paid $315 million for Converse in 2003 while the brand had sales of around $200 million - implying a P/S multiple of 1.6x
In sharp Contrast, Nike's P/S Multiple At That Time Was Just 0.15x
Nike P/S Multiple [ A / B ]
Average Price Of Nike Shares [ A ]
Nike Revenue Per Share [ B ]
At the time of purchase, Nike's P/S multiple was just 0.15x - less than one-tenth the multiple for the Converse deal.
Although, the purchase seemed expensive at that time, it has turned out to be a bargain
Despite Paying A Premium, Converse Has Been A Great Addition To Nike:
Converse Has Achieved Robust Revenue Growth Over The Years
*Nike started reporting numbers for Converse separately in 2007
Change in converse revenue
Converse as % of total nike revenue
Converse's revenue has increased from around $560 million in 2007 to more than $1.9 billion in 2019 at an average annual rate of 10.7%As a result, Converse's contribution to total revenue has gone up from 3.5% in 2007 to 5% in 2019.However, the brand's revenue peaked in 2017 at $2 billion. Since then, Converse's sales have declined.
Moreover, Converse Has Been Operating At A Higher Margin Than Nike
* Numbers available from 2013 only
Converse Operating Margin [ A / B ]
Converse EBIT [ A ]
Converse Revenue [ B ]
Converse has been operating at a higher profit margin than Nike. Converse's EBIT margin in the last five years has averaged around 21% while Nike's margin averaged 17%.
However in 2018, Converse's margin sharply declined to 16.4% due to a a steep fall in revenue. As of 2019, Converse's EBIT margin of 16% was slightly below Nike's 17%.
Nike operating margin [ C / D ]
Nike EBIT [ C ]
Nike Total Revenue [ D ]
However, the Revenue Per Store figure for Nike has been higher than that for Converse
Nike Revenue Per Store = [ A / B ]
Total Revenue [ A ]
Nike Stores [ B ]
Nike's revenue per store has consistently been much higher than Converse's.
As of 2019, Nike's average revenue per store stood at $34 million - almost 3x that of Converse's.
Converse Revenue Per Store [ C / D ]
Converse Revenue [ C ]
Converse Stores [ D ]
Moreover, since 2012, Converse's average revenue per store has declined by 50% while over the same time frame this metric for Nike has gone up by 16%.
Nike's strategy of accelerated store openings to achieve growth for Converse doesn't seem to be bearing fruits.
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