Adidas makes strides in key markets

Quarterly profits at Adidas rose by nearly a third as world’s second biggest sportswear group notched up rapid growth in its key North American and Chinese markets.

The German group said that in the three months to March net profits had jumped 30 per cent to €455m, while sales rose 19 per cent to €5.7bn. Analysts had expected €421m in net profit, according to a Reuters poll. Adidas’s shares rose 3 per cent on the news to €187.64 in early morning trading in Frankfurt.

Adidas last year hired Kasper Rorsted as chief executive from consumer goods group Henkel with a goal of improving the group’s margins and closing the gap on arch rival Nike, which has left Adidas trailing in its wake in recent years.

Mr Rorsted took on the top job in October, and in March ratcheted up Adidas’s targets for sales and earnings growth for the five years to 2020. Hitting those targets, which include average annual sales growth of 10 to 12 per cent, will depend in part on how Adidas performs in the US, where Nike’s advantage is most entrenched.

Adidas made good progress on this front in the first quarter, with revenues in North America rising 31 per cent once currency moves have been stripped out. This was significantly faster than Nike, which grew just 3 per cent in North America in its most recent quarter, albeit starting from a much higher base.

Adidas’s revenues also rose quickly in China, where they were up 30 per cent, and Japan, where they rose 21 per cent, and John Guy, an analyst at MainFirst, said that the results amounted to a “strong beat”. “The market share gains in North America and Greater China are impressive,” he said.

Herbert Sturm, an analyst at DZ Bank, said that Adidas’s spending patterns had also played a big role in the better than expected results.

“The major reason for this positive surprise: operating expenses as a percentage of sales decreased to 39.1 per cent [from 40.3 per cent in the first quarter of 2016] due to significantly lower marketing expenditure,” he said.

Mr Rorsted said that demand for Adidas’s products had been “strong across the world”, while ecommerce revenues — which Mr Rorsted aims to quadruple by 2020 — jumped 53 per cent in the first quarter.

“Building on this performance, we are confirming our full-year guidance,” he said. “We aim to deliver double-digit revenue growth and an over-proportionate profitability increase in 2017 yet again.”

Adidas expects its sales to increase between 11 and 13 per cent, and net profit to rise between 18 and 20 per cent this year.

News Courtesy: The Financial Times