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Adidas gains ground on Nike's US home turf

May 04 2017 12:30
Richard Weiss, Bloomberg

Frankfurt - Adidas is racing ahead in the US with sales growth that’s outstripping archrival Nike as its namesake brand and Reebok capitalize on the trend for retro and 'athleisure' fashions that are worn off the sporting grounds.

North America was the German company’s strongest-performing region in the first quarter, with a sales increase of 31% at constant currencies, followed by greater China at 30%, the company said on Thursday. Nike’s North America revenue grew 3% in the three months through February 28, showing that Adidas is gaining market share.

Chief executive officer Kasper Rorsted has been doubling down on surging sales of casual sneaker lines like the Superstar, originally made popular in the 1980s by rappers Run DMC, to transform Adidas into a fast-fashion business as he seeks to catch up on Nike’s home turf.

As of March, Adidas had a roughly 11% share of the US athletic footwear market, compared with about 55% for Nike, according to Deutsche Bank.

“We need to be humble about where we are in the US,” Rorsted said on a call with reporters. “Our target is to build sustainable brand loyalty. We are coming from a very different basis than our larger competitor.”

Adidas reported first-quarter profit that beat estimates, helped by a strong performance in the US, China and online. The shares rose as much as 3.7% in morning trading.

Adidas raised its outlook four times last year, providing a springboard for Rorsted after he took the reins from longtime CEO Herbert Hainer in October. The company is betting big on a sportswear fashion trend that has also lifted smaller German sportswear brand Puma as consumers shift away from hard-core providers of athletic gear like Under Armour.

The company plans to invest more in the US and speed up its supply chain to sell more goods at full price. It’s targeting a quadrupling of online sales to €4bn by 2020 and wants to divest its golf hardware and the CCM hockey business as it focuses on its namesake label and the Reebok brand. Online sales advanced 53% in the quarter, Adidas said.

Sales at Reebok grew 13% in the quarter, driven by strong double-digit sales increases in the “training” and “classics” categories. That was the strongest growth in “many years,” a spokesperson said, though Rorsted cautioned that gains were unlikely to continue at that rate because the company pulled forward some product launches and opened a disproportionate number of new stores in China in the period.

Adidas’s best-selling shoe in the US was the Superstar, which was third behind two Nike models in the period, according to market researcher NPD.

Russia weakness

Adidas’s strong performance in the US was not matched in Russia, where the sporting goods market shrank in the quarter as international sanctions and a lower oil price drove consumers to shop for cheaper clothes.

The company has closed almost one in 10 of its Russian stores, Rorsted said. While that means Adidas will fall short of its forecast to increase sales in Russia by 10% this year, the change has no impact on the group’s overall targets, the executive said.

Overall, earnings before interest and taxes rose 29% to €632m, above the €592m average estimate of analysts compiled by Bloomberg. First-quarter sales rose 19% to €5.7bn, beating the €5.4bn average estimate.

“Today’s earnings release confirms healthy and ongoing brand momentum at Adidas and improvements at Reebok, with growth rates ahead of peers,” RBS analyst Piral Dadhania said in a note, adding that the company’s “market share and margin opportunity in North America is structural and not cyclical.”

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