What's going on?
Adidas has been looking for a new CEO for about 18 months – and on Monday it hired one. Investors loved it: the stock jumped 6%.
What does this mean?
Kasper Rorsted, who has been the CEO of consumer and industrial goods company Henkel since 2008, is the new CEO. The current CEO served 15 years and had already announced that he would be stepping down. Adidas has had somewhat of a tough run in the past few years as profits were often lower than expected. It has to figure out how to become more profitable going forward and also has to make some tough decisions about possibly selling some of its brands, like golf brand TaylorMade.
Why should I care?
For the stock: Investors are expecting Rorsted to improve Adidas’s profit margins. That means more profit for every Euro of revenue generated (e.g. it doesn’t necessarily need to sell more running shoes, it just needs to make more money on the running shoes it does sell). One reason investors are so enthused with his appointment is that Mr. Rorsted did a good job of improving profitability at Henkel (which is twice the size of Adidas). By contrast, Henkel shares fell more than 4%.
The bigger picture: The market has become scared that consumer spending will be a lot weaker than anticipated. After a very strong 2015, consumer discretionary stocks are amongst the worst performers so far in 2016. Part of the nervousness is a result of the general anxiousness that the economy, especially in the US, is slowing down. Weak data on US retail sales on Friday didn’t help the mood. It’s too early to tell if there will be a big impact on athletic brands – most of whom have reported excellent profits in past quarters – but it’s fair to say that investors now think it will be a more challenging macro environment for them.