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Peers‘ gross margins are down, Adidas‘s is up
04 Aug 16
Adidas’s revenue growth moderated somewhat from Q1 (+17% to €4.77bn) to Q2 (+13% to €4.42bn), but the numbers are astonishing. Even more so are the group’s profit numbers. H1 EBIT was up by 57% to €905m and net earnings by 74% to €642m. Both profit numbers are historically high numbers, but include a sizeable gain from having given up the sponsoring contract with Chelsea FC.
Q2 sales and profits clearly higher than expected
28 Jul 16
Although Adidas will release its final H1 accounts only on 4 August, it has given some indications today. Revenue increased by 13% to €4.4bn and EBIT was up by 77% to €414m. This latter number includes a ‘mid-to-high double-digit million euro profit’ from the early termination of the sponsoring contract with Chelsea FC. Consequently, net earnings (from continuing operations) increased by 99% to €291m. Unlike most of its peers (i.e. Nike and Puma), Adidas achieved a higher gross margin which has supported earnings. This positive development has allowed management to raise its full-year guidance. Instead of revenue growth of 15%, it now sees sales increasing by the ‘high teens’. Simultaneously, the operating margin is expected to reach 7.5% (instead of 7.0%) and net profit to increase by between 35% and 39% instead of 25%. The margin difference is primarily the result of the one-off gain from the Chelsea contract.
Additional information for the 2020 strategic plan
18 Jul 16
Management released some additional information on how it intends to grow disproportionately through to 2020. Whether this strategy will be followed by the new CEO, who will join shortly, remains to be seen. The following text is the company’s press release: At an investor event today in Herzogenaurach, the adidas Group provided a status update and detailed its ambitions for its three strategic choices Speed, Key Cities and Open Source. The choices build the foundation of the Group’s 2020 strategic business plan, which was introduced in March 2015. By ‘Creating the New’, the group aims to achieve sustainable and profitable growth over the next five years by significantly increasing brand desirability. Speed Serving the consumer in the best way possible is a key driver of increasing brand desirability. As a result, the adidas Group will ensure that consumers always find fresh and desirable products at any given place and point in time. By re-shaping its entire business model end-to-end, from range planning to product creation, sourcing, supply chain, go-to-market and sales, the adidas Group expects to significantly improve its speed-to-market. As part of these efforts, the adidas Group will significantly enhance its capabilities to reproduce seasonal best-sellers to fulfil higher consumer demand (Planned Responsiveness) and improve its ability to create or capture the latest industry trends (In-Season Creation). In addition, the company will expand its programmes for products that are replenished on a constant basis to ensure the most iconic and desired products are permanently available (Never Out Of Stock). Driven by these ‘Speed’ initiatives the group expects to significantly reduce the risk of overbuying stock, capture additional revenues and notably increase margins: By 2020, the company forecasts to generate 50% of its net sales with speed-enabled products. In addition, the group’s share of full-price sales across all speed ranges is forecasted to improve by 20% over the next five years. “Our goal is to give consumers what they want when they want it. Speed is one of the most powerful levers for our group to do so. It will change the way we create, manufacture and distribute our products. It will revolutionise our current business model,” said Franck Denglos, Vice President Speed. “Speed will be a key competitive advantage for us as we transform the adidas Group into the first true fast sports company.” Key Cities With 50% of the global population living in cities and 80% of global GDP generated in metropolitan areas, these urban centres play a key role in creating trends, shaping global brands and building brand desirability. As a result, based on their global influence, their commercial relevance and their relevance for sports and street culture, the adidas Group defined six global key cities that it will focus its efforts on and that will serve as role models for the rest of the world: Los Angeles, New York, London, Paris, Shanghai and Tokyo. Across these cities, the adidas Group will disproportionately invest in marketing and retail experiences with the goal of maximising brand experiences. By creating an integrated brand and business ecosystem designed to elevate the brand’s presence across all relevant consumer touch points, the adidas Group aims to outperform its major competitors in these cities both in terms of market share development and brand advocacy. In addition, driven by a strong focus on key categories, the company expects to double its business in each of these urban centres over the next five years. “The influence of global metropolitan areas on trends and brands cannot be overstated. The fate of global brands is decided in global cities. If we want to be successful in the future, we need to win in key cities,” said Christopher Williams, Vice President Commercial Planning and Development. “Our focus on key cities enables us to activate our categories in the right areas and engage with communities in the most relevant neighbourhoods. All of this ensures that our brands shine where they have the biggest impact to drive brand heat. That is both within and – through the halo effects created – also beyond city borders.” Open Source In order to leverage the full potential of its brands and their DNA, the adidas Group aims to build a unique collaborative network and invites athletes, creatives, consumers and other partners to help shape the future of sport and sports culture. To increase its own creative capital and gain new perspectives, the adidas Group is providing these externals with access to internal tools, including the archive, materials, factories and data. The collaboration with Kanye West, which, in 2015, translated into the unrivalled reach of the Yeezy Season 1 fashion show and an unprecedented global sell-through rate of all Yeezy Boost sneakers since then, is a prime example of how the Group started to bring this aspect to life. The collaboration was just recently brought to the next level, making it the most significant partnership ever created between an athletic brand and a non-athlete. Another example of a game-changing Open Source initiative will be the opening of the first ‘Creator Farm’ in New York City in the fall of 2016. The design studio and creation centre will invite urban creative talent to fuel creativity and innovation in sports, outside the regular seasonal product creation calendars. In addition, as part of its Open Source efforts, the adidas Group will be collaborating with the best partners in other fields and will exchange core competencies to create unique brand value. The touchpoints reach from the core field of sport, sports health and monitoring to entertainment experience, manufacturing and sustainability. The award-winning partnership with Parley for the Oceans is as a very positive proof point for the early success of these initiatives. “We are the first sports company that invites athletes, consumers and partners to be part of our brand,” said James Carnes, Vice President Brand Strategy Creation. “Our portfolio of creative influencers and innovative partners such as Kanye West, Stella McCartney, Disney, Parley for the Oceans, Red Bull Media House, BASF and Google offers incredible opportunities for us to leverage our brands, showcase our creative potential and inspire consumers more than any other sports company. Together, we will co-create the future of sports.” SPEEDFACTORY All three strategic choices are supported by the group’s industry-changing SPEEDFACTORY initiative, which heralds a new era in footwear creation. This flexible model challenges the idea of centralised production and makes product close to where the consumer is. It opens doors to creation of product completely unique to the fit and functional needs of consumers, through a combination of the craft of shoemaking and cutting-edge technology. The new SPEEDFACTORY facility is all set to go commercial in Germany and will begin large-scale production in mid-2017. The addition of a second SPEEDFACTORY facility in the US at the end of next year will bring the total annual capacity up to 1 million pairs, with further acceleration of the rollout possible for the years thereafter. “With SPEEDFACTORY, we are challenging conventions and disrupting the status quo of our industry,” said Gerd Manz, Vice President Technology Innovation. “The consumers of today live in a constantly changing world. This shapes their behaviour and expectations. They demand newness and immediacy without compromise. SPEEDFACTORY will allow us to fulfil the consumer’s demand for speed, aesthetics and performance better than ever before and better than anyone else.”
More details on the SPEEDFACTORY
01 Jun 16
Adidas announced on 24 May the commercial production of shoes at an all-new SPEEDFACTORY in Germany in 2017. This factory is operated by Oechsler Motion GmbH, a company primarily known for producing plastic components for the car and medtec industries. Up to now, Oechsler has also delivered high-performance running-shoe base plates. Adidas and Oechsler have agreed that Oechsler builds an entirely new plant for individual shoe ware. By 2018, the plant is expected to produce 500,000 pairs of shoes. The plant is fully-owned by Oechsler, i.e. it pays for the investment and the workforce is employed by it. The plant is not allowed to produce shoes for any Adidas competitor. As a result, Adidas will not incur any financing needs either for the plant or for future working capital requirements, i.e. the so-called ‘Adidas SPEEDFACTORY’ is an extended workbench for Adidas but is not owned by it. If successful, this production technique, which is extremely flexible, will also be established in North America. It does not genuinely reduce the company’s dependence on supply from Asia, but it offers flexibility for the individual products consumers are looking and willing to pay for.
Adidas' management team may or may not change
15 May 16
Igor Landau, the Chairman of the Supervisory Board, was interviewed by FAZ. The question, whether Rorsted’s appearance as Adidas CEO will lead to a reshuffle, was answered with a “no”. At the same time, Landau stated that a new CEO would have the right to build a team that fits his needs. This suggests that the management team will not be changed during the course of this year but most likely in the not too distant future. Whether outgoing CEO Hainer will succeed Landau, when he retires as Chairman in 2019, was also not clearly answered. Hainer’s two-year cooling-off period will then be over and it remains to be seen whether or not Rorsted discovers inconsistencies when Adidas signed sponsoring contracts with corrupt sports organisations like FIFA and UEFA. Landau clearly stated that the Management and Supervisory Boards have investigated these contracts and that no wrong-doing was discovered.
Huge gain from Chelsea as it terminates the Adidas sponsoring contract
12 May 16
This agreement had a term until June 2023 but has now been terminated by the football club as of June 2017. Adidas will be compensated with a ‘mid double-digit’ million euro amount. Consequently, it raises the guidance for the 2016 net income from continuing operations to around €900m and the operating margin to around 7.0% from between 6.6% and 7.0%. This new guidance suggests that Chelsea will pay around €60m.
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UK Housebuilding Sector: Q3 2016 - “I am Steve McQueen”
11 Oct 16
Steve was street savvy, but he was not the smartest knife in the drawer, which makes his Delphic comment to Robert Vaughn all the more surprising. What Steve was saying is that “it’s not over yet”; that there is still a lot more to come (sadly for McQueen, who died in 1980 aged 50, it was a future that was not his). The same is true of Brexit and the collateral undulations that it has riven in the UK Housebuilding Sector. Immediately post-the-Brexit-vote, the UK Housebuilding Sector tanked 36% in value in two trading days (24 and 27 June with a weekend in between); and at one stage was off almost 40%.
Safe as houses
17 Oct 16
Telford Homes is in as strong a position as it has ever been in the 15 years since flotation. The company has a strong balance sheet, with an expanded equity base and significant headroom on its banking facilities, a large development pipeline and impressive forward sales position, and good levels of demand for its product and geography from a diverse group of buyers.
“Encouraging”Q1: Positive transformation momentum continues
24 Oct 16
“Encouraging” AGM/Q1 (July-Sept 2016) FY17 trading update should reassure further as it builds on the strong momentum of the recent FY16 results. Management’s self-help initiatives appear increasingly sure-footed. Reflecting the balance of this encouraging Q1 outcome and the highly uncertain backdrop (e.g. raw material prices/input cost inflation, currency movements, and other macro pressures), we think it prudent to keep our FY17 forecasts unchanged for now, not least as there are another 3 financial quarters to navigate. That said, so far so good. We therefore retain our BUY.
Short term blip provides an attractive entry point
04 Aug 16
Portmeirion Group has reported their interim results this morning which are inline with our revised estimates. The company has had a mixed first half year but should be well positioned to rectify underlying issues in South Korea and India and hit our full-year numbers. The recent profit warning should be viewed as a blip and should not overshadow the company’s fantastic track record.
N+1 Singer - Swallowfield - GQ Grooming Award
25 Oct 16
Swallowfield has announced a prestigious award win for The Real Shaving Company's Sensitive Shave Gel. The Shave Gel won the Best New Shaving Gel at the GQ Grooming Awards. The aerosol product has been introduced since Swallowfield acquired The Real Shaving Company brand in May 2015. It is a good example of Swallowfield's ability to innovate and enhance its brands using its formulation expertise and technologies.