Tariffs: what happened?
In response to Liberation Day tariffs announced last week, in our Weekly Checkout, we published our initial thoughts on the implications on Adidas EPS using scenario analysis.
BNPP Exane View:
There was a lot of news flow last week, but in case you missed it, below we show a theoretical illustrative example for Adidas and a summary of the potential impact of tariffs using scenario analysis on both Adidas and Puma. It is important to note that several assumptions are built into the model, and so this does not represent a definitive answer. Our model is available upon request.
. Sourcing mix: We create a blended tariff rate based on our estimates of the sourcing exposure by country into the US and calculate that US COGS could go up c.4%. We tend to use the global sourcing mix as a proxy but note that China sourcing into the US is only around 3-4% for Adidas and around 10% for Puma. For our estimates on sourcing mix detail, refer to Liberation Day implications for European General Retail.
. Scenarios: We create scenarios depending on US price hikes: 1) US pricing does not increase, 2) US price increases of 5%, 3) US price increases of 10% and 4) where pricing would need to go to hold EPS.
. Top-line and COGS assumptions: In the pricing scenarios, we assume that units fall proportionally to the price increases (revenues unchanged), which is a key variable to consider. We take the total COGS and multiply that by the US revenues to get to an estimate of US COGS. Within US COGS, we then multiply that by 75% to derive the factory, aka product, COGS. Most companies do not break out factory COGS and so this remains an estimate. We then apply our blended tariff rate.
. Efficiency assumptions: We assume that Adidas is able to mitigate some impact of these tariffs, through operating efficiencies, supplier renegotiations and flexible sourcing. The speed and extent to which Adidas could re-route its supply chain is not known, and...
