NEW ADIDAS CEO RORSTED CONFRONTS ‘HIGH BAR’
Kasper Rorsted is to take post tomorrow, stepping in after leading Henkel turnaround
Kas per Rorsted( pictured ), who takes over as chief executive of Adidas AG on Saturday, has a track record of cutting costs and boosting margins. Now investors want to see him do more.
Mr. Rorsted comes to the sporting-goods maker after eight years running German consumer-products giant Henkel AG, where he led a significant turnaround. The 54year-old Dane hit all of his financial targets amid the global recession, and Henkel’s share price tripled during his tenure. When Adidas, also based in Germany, said in January that he would succeed 15-year CEO Herbert Hainer, its share price jumped 6.3%.
Adidas Chairman Igor Landau called Mr. Rorsted “the perfect candidate” for the job, particularly in light of his achievements at Henkel.
At Adidas, Mr. Rorsted doesn’t need to pull off another turnaround because Mr. Hainer recently guided the company out of a multiyear slump. A big challenge for Mr. Rorsted is the fact that Adidas is doing well.
The company has raised its financial outlook four times this year. It recently surpassed rival Under Armour Inc. in quarterly North American sales, and its share price more than doubled over the past 12 months. Mr. Hainer said recently he was “convinced” double-digit sales growth in the U.S. would continue.
“It’s not the greatest scenario for Rorsted,” said John Guy, an equity analyst at MainFirst Bank, of the strong base against which Mr. Rorsted’s performance will be measured. “I think he will be sensible not to go out with anything too bullish to start with.”
A member of Adidas’s supervisory board said “the bar is very high” for Mr. Rorsted, given the recent surge in Adidas’s share price and the expectations it reflected.
Despite Adidas’s renewed vigor, investors see upside potential, particularly on profit. The company’s operating-margin target of 7.5% this year is roughly half of that of larger US rival Nike Inc.
Ingo Speich, a fund manager at German fund company Union Investment, which holds Adidas shares, said he would like to see Mr. Rorsted lift profitability. “We expect him to deliver a double-digit margin within a few years,” Mr. Speich said.
Mr. Hainer, Adidas’s departing CEO, said Mr. Rorsted has “tons of opportunities” to save money.
Analysts say he could look at Adidas’s manufacturing and distribution channels and at costs related to its lavish headquarters campus in rural Bavaria. Adidas also could shed some smaller brands, they said.
Tim Albrecht, a fund manager for German equities at Adidas shareholder Deutsche Asset Management, said the sporting-goods industry is already “highly consolidated and cost-efficient.” He said Mr. Rorsted should strive to improve sales at Adidas’s high-performance sports segment in the U.S. rather than focus on cuts.
Strong sales in the U.S.—the world’s biggest and most influential sporting-goods market— could ensure continued growth for Adidas. After several down years, Adidas is surging in North America, helped by improved sneaker sales, its design collaboration with rapper Kanye West and increasing traction in social-media outlets such as Instagram.
Still, Adidas generates only about one dollar in North American sport-footwear and activewear sales for every seven dollars in Nike sales there, according to NPD’s retail tracking service.
Matt Powell, an analyst with market researchers NPD Group, said Adidas’s concentration on the “most important sneaker market in the world” has been the main driver behind the company’s recent global turnaround. Mr. Rorsted’s task is now to prove the trend is sustainable, he said.
Mr. Rorsted, who spent many summers in the U.S. as a child, studied there and visited frequently as CEO of Henkel, said he has a strong understanding of the U.S. market.
“The U.S. mentality, which is a bit more competitive, was set in me at an early age,” he said in an interview earlier this year.
One area where he will need to compete as Adidas CEO is for sports sponsorships, which are a big part of the company’s marketing strategy. Sporting-goods companies have in recent years shifted focus from sponsoring teams to rich single-player deals. Meanwhile price tags for deals with the few most attractive teams have soared.
Adidas two years ago snatched the sponsorship of soccer club Manchester United from Nike, offering the team £75 million ($97 million) a season. This was roughly three times what Nike had paid. Earlier this year, Nike sealed a deal with soccer club FC Barcelona for an estimated
150 million to 155 million ($168 million to $174 million) per season.
Another big cost awaiting Mr. Rorsted is refreshing Adidas’s retail network.
“On the marketing and sales side, Adidas needs to materially invest in an aged and, in some instances, poorly located store portfolio,” said Mr. Guy, the MainFirst analyst, adding that some Adidas stores in the U.S. look as if they are “an homage” to the 1990s. Adidas declined to comment.
“Mr. Rorsted needs to do it all,” Mr. Guy said. “Save money, sustain strong top-line growth and provide an incremental foothold in richer stores to improve the margin.”