Adidas is on a roll, pushing past its American competitor, Nike, with strong growth momentum. Just two years ago, the idea of Adidas surpassing Nike would have seemed unlikely. However, after a challenging period, especially with its high-profile split from rapper Kanye West, Adidas has turned things around, while Nike's performance has lagged.

Adidas’s Financial Gains and Market Momentum

Adidas recently announced its third profit forecast increase in just six months. For the full year, the company expects operating profits to reach €1.2 billion, which is double its initial estimates. Additionally, Adidas’s revenue is projected to grow by 10% in constant currency terms. The company’s gross margins have risen to 51.3% in the third quarter, significantly higher than Nike's 45.4%. Adidas’s share prices have surged 120% since it ended its partnership with Kanye West (now known as Ye) in October 2022, though they haven’t yet returned to 2021 levels.

Product Line Success and Innovation Drive Growth

With the Yeezy line phasing out, Adidas is shifting focus to other successful models, like the Gazelle, Samba, and Spezial. Investments in research and development are paying off, with performance shoe sales rising over 10% year-over-year. Adidas has also reintroduced its products to independent retailers, moving away from a direct-to-consumer focus, which is driving broader-based growth. Japan and South Korea reported impressive sales increases of 18% in the last quarter, while North America saw a 7% sales decline.

Capitalizing on the Retro Trend – And What’s Next

The popularity of retro styles has given Adidas an edge, as classic models from its extensive archive resonate well with today’s trends. However, Adidas isn’t relying solely on trends; it’s continuously investing in innovation. In the most recent quarter, marketing, point-of-sale, and operating expenses have all increased, supporting its growth. Adidas is also working on new models, including 3D-printed shoes, set to launch over the next year.

Investor Outlook: A Brand to Watch

With a valuation that still trails Nike’s and the potential for improved dividends, Adidas remains a strong choice for investors. As the company continues to innovate and benefit from the current trend, Adidas is showing it has what it takes to stay in the lead.

Source: (FT.com)