Ac­tivewear mar­ket is ex­pected to grow by 8%

Cape Times - - FOCUS - Frants Preis, CFA is a port­fo­lio man­ager at Vega As­set Man­age­ment based in Pre­to­ria. Adi­das shares are owned on be­half of clients. FRANTS PREIS

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.

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