What's going on?
German sportswear maker Adidas saw its stock soar 9% on Friday following better-than-expected first-quarter results.
What does this mean?
Adidas overtook investors’ estimates as the sportswear giant saw its profit climb 17% versus the same period last year. But rather than selling lots more sneakers and tracksuits, that high jump was due to Adidas reducing its raw material and marketing costs (direct online sales increased 40%), along with favorable currency movements.
The company had already warned in March that sales would be hit by ongoing supply chain issues preventing it from meeting rampant demand for its mid-market gear in North America. Perhaps Adidas was more concerned with pushing sales 16% higher in China: the Asia-Pacific region is its most important market, accounting for more than a third of the company’s sales.
Why should I care?
For markets: Adidas is ticking shoeboxes.
Although Nike still dominates the US sportswear market, sales of Adidas’s more retro-styled sports aesthetic continue to grow faster than those of Nike’s performance-focused mentality. It seems the trade-off between style and performance is giving the upper hand to style, which may be thanks to Adidas’s collaborations with the likes of Kanye West and, now, Beyoncé. Cannily combining production of athleisure brands such as 90s favorite Reebok with actual sports labels like TaylorMade and Runtastic has seen the German shoemaker push its profit margin ahead of Nike’s.
The bigger picture: Those days are all the rage these days.
Adidas isn’t alone when it comes to beating expectations. American sportswear apparel maker Under Armour saw its own stock rise on Thursday after both revenue and profit exceeded analysts’ expectations. Unlike Adidas, Under Armour is decisively choosing performance over style; nevertheless, the company did attribute falling sales in North America to competition from Nike and Adidas. Perhaps Under Armour’s lack of retro sneaks is to blame. Wouldn’t you pay $800 for a pair of dirty old Guccis?