Adidas is outpacing rivals in North America

Dive Brief:

Adidas on Wednesday reported currency-neutral fourth quarter sales rose 19%, driven by a 22% increase at flagship brand Adidas and a mid-single-digit sales increase in the training category. Revenues at the Reebok brand declined 1%, as double-digit increases in the running category as well as in Classics were more than offset by declines in the training category, according to a company press release.
North America sales for both brands rose 31% in the quarter, plus 32% in China, 17% in Western Europe and 19% in Latin America, the company also said. The company's gross margin increased 2.2 percentage points to 51.7% (up from 49.5% in 2016), mainly due to the positive effects from a better pricing and channel mix.
For the year, currency-neutral revenues rose 16%, reflecting an 18% increase at Adidas, which had double-digit sales increases in the running category as well as at Adidas Originals and Adidas Neo, plus high-single-digit sales increases in training. Reebok revenue rose 4%, driven by double-digit sales increases in Classics and low-single-digit growth in running. While the brand's international revenues grew at a double-digit rate last year, U.S. sales declined due to many store closures. E-commerce revenue last year rose 57%.

Dive Insight:

Much is made of how Adidas' focus on street styles has helped the brand gain favor with consumers, but its sports sales still dominate, and the World Cup helped its fourth quarter a lot, according to Wedbush analysts.

Still, Adidas has departed most forcefully from performance sports wear compared to rivals, and that has shown up in its results. Adidas grabbed back the number two spot from Under Armour in 2016, basing much of its comeback on a focus on urban aesthetics and streetwear. That helped stoke sales in North America all last year, where hometown rivals Nike and Under Armour are struggling, and the company's strategic growth areas — North America, greater China and digital commerce — were the main drivers of its performance and its ongoing momentum, according to a statement from Adidas CEO Kasper Rorsted.

"2018 is a key milestone on the road to achieving our long-term targets for 2020. We expect quality growth, with overproportionate bottom-line improvements. This will enable an even stronger increase in profitability by 2020 and allows us to upgrade our long-term target yet again," he said.

Wedbush noted that the company is successfully protecting margins in a competitive athleisure space, according to comments emailed to Retail Dive. For the fourth quarter, operating margin increased 1.7 percentage points to 2.6%, and for the full year, operating margin increased 1.2 percentage points to 9.8%, according to Adidas' press release. "Our checks, however, did point to more promotions in the core business, which may also partially explain the sales boost," Wedbush said in a note to clients.

Indeed for all athletics brands, discounts drove sales at the holidays, according to a Black Friday report from Matt Powell, vice president and senior industry analyst at The NPD Group, who warned that must change this year. "I have low expectations for athletic footwear in 2018," he wrote. "Brands have stated that they will tighten advertising policies to try and rein in the rampant promoting we saw in 2017. While these are the right steps to recovery, it means that in the short term retailers and brands will do less business."