August 9, 2018 / 6:21 AM / 2 months ago

Adidas shares jump as North America growth outpaces Nike

BERLIN (Reuters) - Adidas reported strong second-quarter results on Thursday, as its sales growth outpaced rival Nike in North America where new styles are proving popular even as the German sportswear brand stagnated in western Europe.

Shares in the company famous for its three-stripe brand soared more than 10 percent to a four-month high, putting them on track for their best day since the group increased its financial guidance in March.

The results are the latest endorsement of a strategy pursued by Chief Executive Kasper Rorsted since taking over in 2016, focused on improving profitability as well as expanding in North America and China and pushing sales via ecommerce.

Some investors feared that Adidas would struggle as the popularity of its retro Stan Smith and Superstar shoes waned in the last 18 months. Promoted by singer Pharrell Williams, the Superstar was the top selling shoe in the U.S. market in 2016.

But Rorsted says Adidas has managed the fashion cycle carefully, trying not to oversupply old styles, while stepping up promotion for new lines like its springy “Ultra Boost” running shoes and the “Parley” made out of recycled ocean plastic.

The 1980s “Continental” leather sneakers that were relaunched in June are already selling out, Rorsted said, and a broadening of a partnership with rapper Kanye West is planned, after earlier designs were made only in very limited quantities.

Tighter control of supply helped Adidas sell more shoes at full prices in the quarter, helping to counteract higher marketing spending due to the soccer World Cup.

WESTERN EUROPE LAGS

However, Rorsted admitted that the company failed to focus enough on the launch of new products in western Europe, prompting management changes in the region. Sales were likely to stay flat in the region in the second half of the year, he said.

While Adidas has been taking market share from Nike in North America, the U.S. firm has been powering ahead in Europe, Middle East and Africa, with sales up 10 percent in its March to May fiscal fourth quarter.

Group sales rose 10 percent to 5.26 billion euros ($6 billion) after currency effects, beating the 8 percent expected by analysts, while attributable net profit of 396 million was also ahead of the average forecast for 386 million.

Adidas saw sales growth in North America slow slightly to 16 percent, but that was still well ahead of the 3 percent growth Nike reported for March to May.

In greater China, Adidas sales growth accelerated to 27 percent, slightly ahead of Nike’s 25 percent, and they jumped 14 percent in Russia, which hosted the World Cup.

Nike teams dominated the final rounds of the World Cup, but Rorsted said the tournament was still a success as Adidas sold more than 8 million shirts and more than 10 million balls, and saw a boost to downloads of its app, advertised in stadiums.

Adidas said it was taking an impairment of 475 million euros (427.3 million pounds) related to the Reebok trademark in 2016, but it said the restatement had no impact on its cash position and reiterated its guidance for 2018 and beyond.

Adidas bought the Reebok brand in 2005, but it has performed poorly since. Rorsted has given Reebok until 2020 to return to profitability and said it should be helped by a new partnership with British designer Victoria Beckham.

He noted that Reebok sales in North America rose 6 percent despite many store closures and it narrowed its losses.

FILE PHOTO: An Adidas logo is seen at the new Futurecraft shoe unveiling event in New York City, New York, U.S. April 6, 2017. REUTERS/Joe Penney/File Photo

Reporting by Emma Thomasson; Editing by Mark Potter and Keith Weir

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