By Carol Ryan
Great sporting performances usually involve an element of sacrifice. Adidas is catching up with Nike on profitability -- but at the risk that sales growth slips.
The German sportswear company, which owns Reebok as well as its namesake brand, said Friday that net profit in the first quarter of 2019 increased by 17% compared with the same period of last year. Adidas's business is increasingly shifting online, where sales are more lucrative than those made in its 2,400-strong network of stores world-wide. It also negotiated better prices with suppliers.
For this quarter at least, Adidas's operating margin inched ahead of what Nike managed in its latest set of numbers. While analysts still expect the U.S. giant to report a superior margin of 12.4% for its full financial year, according to FactSet, Adidas won't be far behind at 11.5%.
The improved performance, which shifts the old dynamic between the longtime rivals, sent the German company's shares up 7% in early trading. Traditionally, Adidas's sales growth was top of class, thanks to demand for Yeezy trainers and Stan Smith retro sneakers, but its profitability needed work.
Now, it is growth that looks slack in important markets. Sales at constant currencies fell in both Europe and Latin America, while North America grew a modest 3%. Adidas's overall top line is currently growing at less than half the rate of Nike's. This is less a sign that brands are being starved of investment than that management may be overstretched. The company is having supply-chain problems in the U.S., where it underestimated demand for certain products. Chief Executive Kasper Rorsted expects the issue to be fixed later in the year.
Adidas is starting to look as lean as Nike. Now it needs to recover some of its old sales pace.
Write to Carol Ryan at firstname.lastname@example.org