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Adidas Thinks Beyond the Craze for “Dad Sneakers”

Andrea Felsted
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Adidas Thinks Beyond the Craze for “Dad Sneakers”

(Bloomberg Opinion) -- Adidas AG is going back to the 1990s with some of its new product launches to capitalize on the craze for chunky “dad sneakers” (inspired originally by the high-end fashion house Balenciaga).

It’s a shame that the German sportswear maker hasn’t managed to stick with a more recent trend in the meantime: That of regularly upgrading its sales and profit forecasts. On Thursday it said it would only maintain its financial outlook for the full year, disappointing investors who’d been hoping for a boost. Its shares fell by as much as 3.5%.

Adidas looks like it’s getting to grips with the issues that weighed on its performance last year, including weaker demand in Europe and not being able to supply American customers with enough mid-market clothing. European sales were flat in the second quarter, excluding currency movements, while North American sales rose 5.8% as the supply constraints eased.

Reebok, the sneaker brand that Adidas’s chief executive Kasper Rorsted is trying to turn around, managed to eke out some growth in the three-month period. This was driven by demand for its Classics range, a favorite among millennials. Group sales in Asia slowed, though. What’s more, the cost of dealing with the U.S. supply shortages, such as flying in stock, took its toll on profit.

There was brighter news on the company’s operating margin, which increased year-on-year to 11.7% from 11.3%. Indeed, given the signs of a sales recovery in the U.S. and Europe, it’s surprising that the company would only maintain its guidance for 2019 revenue to expand by 5%-8%, and an operating margin target of 11.3%-11.5% (it was 10.8% last year).

Still, you can see why Rorsted might be cautious. Sales rose 4% in the second quarter, so there will need to be a step up to meet the existing guidance. That looks likely as the company recovers fully from those U.S. stock shortages. Yet adverse impacts from a trade or currency war between China and the U.S. can’t be ruled out. Adidas makes about one-quarter of its sales in China and manufactures about one-fifth of its products there.

By leaving the margin outlook unchanged, Rorsted also gave himself some wriggle-room to invest to compete with Nike Inc. and to continue to rejuvenate Reebok.

With the shares rising almost 50% this year, investors were clearly expecting more. But this is a marathon, not a sprint. To keep narrowing the stock market discount to Nike (on a share price to earnings basis), Adidas has to show that its remarkable recovery is not petering out. Chunky trainers will go the way of all fashions, Rorsted’s job is to create something more lasting.

To contact the author of this story: Andrea Felsted at afelsted@bloomberg.net

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.

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