Nike Headache Adidasʼ US Revival

The German sportswear maker, arch rival to Nike, managed to grow full throttle in the first quarter, especially in North America.
Faster, stronger, higher profits. Picture source: Reuters

Adidas, led by new Chief Executive Kaspar Rorsted since October, may be starting to make its chief rival sweat in its own backyard.

The Herzogenaurach-based firm, the world’s largest sportswear maker after Nike, continued an impressive expansion course in the first quarter, growing overall revenue and net profit at a double-digit rate and beating analysts' expectations. But it was Nike's home market of North America where it recorded especially strong growth, selling 31 percent more shoes, running gear and t-shirts, as measured in local currencies.

Mr. Rorsted, 55, has made it a key priority to grow in the United States, where Nike still dominates over Adidas, Puma, Reebok and Under Armour. To be fair, the first-quarter strength is not just his doing: Adidas posted impressive sales growth of 24 percent in North America in 2016 as well.

That growth could also help it compete elsewhere. For years, Adidas has lagged its main rival Nike in profitability, partially due to Adidas’ relatively small presence in the US market. The German sport shoemaker, which owns Reebok, now expects its operating profit margin to rise to 11 percent by 2020 from 7.7 percent in 2016. That’s still well below Nike’s 13.9 percent, but it's a start.

We had a strong start into the year, with continued sales and earnings momentum. Kasper Rorsted, CEO, Adidas

It's not just Nike that Adidas has to compete with. It also faces growing competition in the United States from a relatively new American sports brand, Under Armour, which has $4 billion in annual sales and is making inroads in Europe as well. The smaller rival at times over the past year had even eclipsed Adidas in terms of US sales, but not this year: Adidas earned almost €1 billion ($1.09 billion) in sales in North America and €5.7 billion globally in the first quarter. That was clearly ahead of Under Armour, which only turned around €800 million in its home market in the first three months of this year.

Both brands  still dwarf Nike, which posted North American revenues of $3.8 billion in the last quarter, which ended on February 28. Unlike Adidas' numbers, that figure doesn't even include subsidiaries like Converse. But Nike's sales aren't showing as much pep: They grew by just 3 percent on the quarter.

Mr. Rorsted, who previously ran Henkel, a Düsseldorf-based manufacturer of adhesives and detergents, expects Adidas' growth to continue throughout the rest of the year. The company confirmed its growth targets, forecasting currency-neutral revenue to rise between 11 percent and 13 percent this year and net profit from continuing operations to grow as much as 20 percent to around €1.2 billion.

"We had a strong start into the year, with continued sales and earnings momentum," Mr. Rorsted said Thursday. "Our major brands Adidas and Reebok as well as all of our key markets posted double-digit sales increases."

Investors cheered Adidas’s earnings update, sending its stock up as much as 3.7 percent in morning trading. It was 2.1 percent higher at €86.00 by 10:22 a.m. in Frankfurt, making it the strongest gainer in the German blue-chip DAX index.

03 Adidas and Nike Key Figures-01

 

Joachim Hofer covers the sports, leisure and IT sectors for Handelsblatt. Gilbert Kreijger is an editor with Handelsblatt Global, covering companies and markets. To contact the authors: [email protected] and [email protected]