Activewear market is expected to grow by 8%
ADIDAS IS the largest sportswear group in Europe and second-largest in the world, after Nike. Its core brands include Adidas, Reebok and TaylorMade.
It manufactures footwear and apparel in sport segments such as football, tennis, golf and running. Adidas is the market leader in football apparel and official sponsor of top football leagues such as Manchester United and Real Madrid.
Adidas sprang to life in 1948 after the two Dassler brothers were unable to agree on the future of their family company, Gebrüder Dassler Schuhfabrik, which was founded in Germany in 1924.
Adolf “Adi” and Rudolf split up all the assets, each going on to create a new separate brand. Rudolf established business rival Puma in 1949.
The global activewear market is expected to grow at a rate of 8 percent per year over the next five years to reach $550 billion (R8.33 trillion) by 2024.
This is despite the headwinds the entire sporting goods sector faces due to higher tariffs in the US.
While global brands such as Nike, Adidas and Puma have already actively diversified their production across several Asian countries such as Vietnam and Indonesia, China still accounts for a quarter of total production capacity for these names.
North America accounts for approximately 20 percent of Adidas’ sales and for almost 15 percent of its operating profit.
It represents a key source of potential margin improvement for the group, being the only region where the company is still meaningfully under-performing its major global competitor Nike.
Adidas recently celebrated another successful quarter. Sales and earnings in their strategic growth areas of Greater China and e-commerce continued to increase at double-digit rates.
Growth has accelerated in the past three years, mainly through its lifestyle brand Originals, which was initially growing at more than 30 percent per annum.
To set itself apart from competitors, Adidas has been using its celebrity partnerships to make inroads with a broader demographic.
Adidas is doubling down on its partnerships with non-athletes such as Beyoncé, Kanye West and Pharrell Williams.
The group continues to show positive progression in terms of brand perception and preference in 2019, supported by its strong social media strategy.
Adidas has spent the last four years curbing ocean pollution by recycling plastic waste into shoes.
The company produced more than five million pairs of recycled plastic waste shoes in 2018 and they plan to incorporate the waste into at least 11 million this year.
With the stock up 45 percent yearto-date due to a re-rating, Adidas is on the expensive side with a forward price-to-earnings multiple of 27.
The market has been more than reflecting its positive long-term growth prospects.
The stock is trading at a significant premium to its own history, but its valuation is in line with peers. Share price weakness in future may present a buying opportunity.