Adidas needs to do one thing to stay ahead of the competition

The Idle Man
  • Adidas may do well in the fourth quarter thanks to the World Cup, but the apparel maker still needs to find ways keep up its momentum, Wedbush analyst Christopher Svezia found.
  • The one way Adidas can stay ahead of competition is to ramp up its promotional activity, he says.
  • Adidas is a German company traded on the Frankfurt stock exchange.

As Adidas gears up for increased sales going into the World Cup in June, competition will also be fierce, and the sportswear retailer will need to go beyond the big sports event in order to maintain its earnings-growth momentum in 2018.

Wedbush analyst Christopher Svezia suggests the sports apparel maker should ramp up its promotional activity in order to stay ahead of the competition.

The company – which is set to release its results on March 14 – is expected to report accelerating fourth-quarter sales, driven mostly by a World Cup bump, as soccer fans scramble to get the latest gear to support their favourite players and teams.

However, the company’s full-year 2018 outlook will likely be under pressure as earnings start to normalize – or move away from one-time influences – and come under pressure from FX headwinds, Svezia said. Yet the biggest challenge to Adidas’s sustainable margin expansion is higher competition, he warns.

“Adidas should remain an industry outperformer while continuing to execute on a solid strategy with strong product,” Svezia wrote. “Still, the company is facing a promotional environment in North America and some headwinds in Europe (outside of World Cup), in a year of likely ramped up competition and difficult compares.”

Svezia said the company’s performance in the past had lacked consistency, largely due to many strong players in the US. Nike, once trailing Adidas, is starting to regain US marketshare, in part by releasing new styles and colours of its popular VaporMax and VaporMax Plus sneakers.

“The prospects for increased promotional activity cannot be dismissed as competition heats up with Nike, Puma, Champion, and Vans,” Svezia said.

Wedbush’s price target for the company was €165 (or $US204.56) per share.

Adidas was currently trading at $US174.05 per share, and was up 4.22% for the year.

Read more about the best way to take advantage of the ‘rise of sneaker culture.’

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