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New Adidas CEO plans fast-fashion focus to catch up to Nike

Mar 10 2017 17:07
Bloomberg: Richard Weiss and Thomas Mulier

Adidas’s new chief executive officer is doubling down on surging sales of casual sneaker lines like Stan Smith and Tubular to transform the German sportswear maker into a fast-fashion business and gain ground on larger rival Nike.

Sales of so-called lifestyle products from the Originals, Neo and Y3 lines rose 45% in 2016, more than triple the pace of performance sports gear, the company said on Wednesday.

CEO Kasper Rorsted said focusing on fast-fashion and stripping away non-core businesses like golf and hockey will increase profit more than expected, lifting the shares to a record.

"The increase in the long-term targets will be especially taken well, proving management’s confidence," wrote Zuzanna Pusz, an analyst at Berenberg.

The increased forecasts add to the momentum of a business that raised its outlook four times last year, providing a springboard for Rorsted after he took the reins from longtime CEO Herbert Hainer about six months ago.

Adidas is betting big on a 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.

Adidas’s new leader said he plans to "over-invest" in the US, where the company trails Nike, and speed production so the company can get clothes to stores faster and sell more goods at full price.

Adidas also plans to quadruple online sales to € 4bn by 2020 and divest itself of the CCM hockey business as it focuses on its namesake label and the Reebok brand.

The company said profit should rise 20% to 22% a year on average through 2020, compared with a previous projection for growth of about 15%, lifting its shares as much as 9.2%. But the new strategy could carry risks if tastes shift - as Puma previously found.

The leaping cat’s performance slumped during the global financial crisis when consumers rejected its fashion-focused approach in favour of more down-to-earth gear before more recently embracing the "athleisure" trend.

Adidas will also need to find buyers for CCM and other businesses it has identified as non-core. It’s been trying to sell its TaylorMade golf unit for almost a year, and previously said it expected the process to be complete by the end of 2016.

Rorsted said Reebok and basketball products have also lagged behind expectations."We are 18 months into our strategy," Rorsted said in a press conference. "We still have a lot ahead of us to deliver."

The company wants to build on sales momentum from classic lines like Stan Smith by adding more modern takes on sportswear fashion with its NMD, Tubular and Iniki shoes, along with clothing lines like XBYO.

"There is no end in sight to consumer demand for sport-inspired street wear," Andreas Inderst, an analyst at MacQuarie, wrote in a recent report.

As well as raising its long-term goals, Adidas gave a 2017 forecast ahead of analyst estimates.

Net income from continuing operations will rise 18% to 20% to as much as €1.23bn, it said.

The average analyst estimate is €1.15bn. Profit rose 41% in 2016, exceeding €1bn for the first time.

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