Adidas Shares Hit Record as Ecommerce Boosts Profits

Article by Emma Thomasson – Partnerwise

BERLIN (Reuters) – Adidas reported a forecast-beating rise in quarterly profits on Friday, helped by booming online sales, and said it hoped to fix supply chain problems in the North American market and revive growth in Europe by the end of the year.

Shares in the German sportswear maker, which have risen by a quarter this year, jumped 7 percent to a new record high, with the sector also buoyed by Under Armour Inc raising its full-year earnings forecast on Thursday.

The group’s profitability has long lagged that of bigger rival Nike, but has improved under Chief Executive Kasper Rorsted, who has focused on expanding in North America and Asia and pushing online sales, where margins are higher than wholesale.

In the first quarter, Adidas said its operating margin rose 1.4 percentage points to 14.9 percent, pulling ahead of Nike which recorded an operating margin of 13.5 percent for the December to February period.

“Earnings are much better than guided for the full year – leaving the door open for margin guidance upgrades in the course of the year 2019,” said Baader Helvea analyst Volker Bosse, who rates the stock “hold”.

Adidas is chipping away at Nike’s dominance of the U.S. market, pushing retro styles that have proved more popular than Nike’s basketball shoes, and teaming up with celebrities such as Kanye West, whose Yeezy line has driven recent strong growth.

Adidas announced last month it is partnering with singer Beyonce, which Rorsted said on Friday would have a “tremendous impact”, noting that the deal generated 1 billion online views, with the first products due for launch later in 2019.

First-quarter profitability was helped by lower sourcing and marketing costs, favorable currency developments as well as selling more higher priced products and the expansion of online, with ecommerce sales up 40 percent in the quarter.

Rorsted told journalists ecommerce had grown fast in all regions, helped by exclusive launches of new products and the fact the Adidas app has been downloaded 9 million times. He expects online growth to continue at 30-40 percent for years.

Overall, sales growth slowed in the first quarter to a currency-adjusted 4 percent rise to 5.883 billion euros ($6.57 billion), but was still ahead of analyst consensus.

Adidas had already warned in March that supply chain issues would hit sales growth in the first half, citing particular problems meeting North America demand for mid-market clothing.

Adidas said it was working to mitigate the shortages, including using more air freight to ship goods – implying higher logistics costs in the second and third quarters – but Rorsted said the problems should ease by the end of the year.

He also expects a recovery by then in Europe – where revenue fell 3 percent in the first quarter, as Adidas seeks to reduce its reliance on its Originals fashion line and boost sales of sports performance gear, with new product launches.

Sales of soccer jerseys ahead of the 2020 European soccer championship should have their first positive impact in the fourth quarter, Rorsted added.