Adidas Still Has Room To Run

Sep. 01, 2017 11:56 AM ETadidas AG (ADDYY)15 Comments
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Summary

  • Morgan Stanley reports that Nike is losing their core customer to Adidas.
  • Adidas sneaker sales are growing rapidly in both North America and China.
  • Nike's continued struggles will fuel Adidas for years to come.
  • Adidas is creating growth by bringing vintage products back to life while simultaneously creating popular new products.

Source: Barron's Next

Since 2016, Adidas (OTCQX:ADDYY) has rapidly expanded their footwear sales, while Nike (NYSE:NKE) and Under Armour (NYSE:UAA) have remained relatively flat. Adidas has revived their retro style while simultaneously releasing new shoes that are dominating the market. Adidas's popular Boost technology has created buzz with every new release. At the same time, they have been trailblazers, showing their willingness to work with non-athletes like Kanye West and Pharrell Williams. This is something familiar to the Adidas brand as they were the first athletic company to sign a non-athlete, Run DMC in 1986. Adidas has begun to reuse this formula and as a result, they are finding great success.

Adidas Revenue Breakdown, Source: Adidas Q2 Filing

Adidas' revenue growth in the first half of 2017 has been substantial in comparison to 2016 numbers. They have shown great strength in both China and North America. As Adidas is a German company, growth in markets outside of Western Europe is a great sign for the brand's momentum.

A lot of this revenue growth is coming from the running segment of Adidas' business. The 27% growth in running revenue has been driven by their boost franchises. On the Q2 conference call, CEO Kasper Rorsted made it clear that there is still a Boost capacity constraint. Despite growing the Boost business 100% over the same quarter last year, they still may not be able to reach demand levels until 2019. Some may believe it is negative that they are unable to meet demand because they are not maximizing revenue potential. I actually believe this will allow Boost to be a catalyst for a longer period of time as there is still an element of exclusivity in purchasing them. As long as there are limited releases within Boost franchises, the status and popularity of the Adidas brand will continue

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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