Adidas on Thursday reported that its second quarter currency-neutral revenues rose 19% as its gross margin improved 0.7 points to 50.1% and net income from continuing operations in the quarter grew 16% to € 347 million ($409 million). The growth included a 21% increase at the Adidas brand and a 5% increase for the Reebok label, the company said in a press release.
At Adidas, revenue growth was driven by double-digit increases in the running category, Adidas Originals and Adidas neo, the company said, as well as by high-single-digit growth in the training category. Top-line improvements at Reebok were driven by strong double-digit sales increases in classics, partly offset by ongoing efforts to clean up U.S. distribution.
All distribution channels recorded double-digit growth during Q2, with particularly strong support from e-commerce, where revenues grew 66%. Basic earnings from continuing operations rose 14% to € 1.72 per share, the company said in a press release. Adidas raised its guidance for the fiscal year, saying it expects currency-neutral revenues to rise between 17% and 19%, gross margin to rise as many as 0.8 percentage points to up to 50.0%, operating margin to grow as many as 0.6 percentage points to a level of up to 9.2%, and net income from continuing operations to rise between 26% and 28%.
Adidas’ sales growth of nearly 20% led Cowen & Co. analyst John Kernan to note last week that the German athletic retailer is "outgrowing Nike meaningfully in all major geographical regions and placing greater pressure on [Under Armour]," adding that the company’s 66% e-commerce growth “continues to highlight the massive opportunity in [direct-to-consumer sales]."
Nike has already taken that note, evident in its decision to sell directly to customers via Amazon in addition to its own stores and website.
Despite its success in the running and training categories, Adidas has staked much of its growth on street styles and that is partly why Jane Hali & Associates analysts remain keen on the brand. "They continuously release new colorways for some of their key products like the NMD," according to a Jane Hali note emailed to Retail Dive. "Adidas Originals is always successful as the product resonates with a fashion upscale customer. The product continues to be design led with minimalistic silhouettes."
Adidas' celebrity influencer roster is impressive and growing, and they make good use of the tie-ins, Jane Hali said. "[N]ot only do they use their celebrity influencers as brand ambassadors, they also produce product with them," JHA analysts noted. "Their list varies from celebrities to artists and micro influencers, which is an ideal way to grow their audience as they can tap into various demographics. They also collaborate with other brands or designers like Raf Simons, Stella McCartney, Palace Skateboards and White Mountaineering."
The company’s retail stores are positioned as superior experiences, where customers can customize their shoes if they please. But Adidas’s online experience is also excellent, Jane Hali said, allowing consumers to check in-store inventory and pick-up online orders from stores. One weak point, according to Jane Hali analysts, is that, while " Adidas’s online experience is excellent and allows consumers to check availability in-store and collect from stores ..., their Instagram is not shoppable and they do not have a mobile app for shopping."
In spite of this, JHA analysts believe Adidas remains "focused on growth" in North America and women's apparel.
That’s bad news for both number one Nike and Under Armour, which was knocked back off the number two spot last year by Adidas. Nike is forging a strategy focusing "on speed and deeper connections with consumers," part of its "Consumer Direct Offense," which aims to boost innovation and product development and forge deeper connections to consumers in the world’s major cities. Under Armour executives told analysts the company plans to shed about 2% of its workforce as part of a restructuring plan that followed a second quarter loss to shareholders.