With North American President Mark King at the helm, adidas AG(ADR) ADDYY has quickly become the most exciting company in the industry.
Following a strong fourth quarter earnings report that saw the company raise guidance, Adidas shares are approaching all-time high territory. The stock is up more than 70 percent over the past year.
What’s behind Adidas comeback? An increased focus on the North American market and a retro shoe resurgence.
While sales of the company's biggest competitor Nike Inc NKE are nearly even worldwide, up until recently, Nike’s North American revenues were around five times that of Adidas. That gap is beginning to narrow, after Adidas announced a sales target of $5.3 billion in North America by 2020. NPD analyst Matthew Powell believes reaching that target will be a "layup" for the company.
The comeback story in North America started three years ago, right around the time King took over after serving as the President of Adidas' golf segment, Taylor Made, for over a decade. King was recently named Executive of the year for 2017 by the Portland Business Journal.
The rhetoric for years had been that Adidas didn't understand the North American market. With King in command, they have significantly changed this sentiment.
"What we wanted to do was really be relevant in the U.S., relevant to the U.S. consumer," King told Benzinga. "So we started to look at things differently. We wanted to look at the market through the lens of the U.S. consumer."
"This message that we’ve been telling about the creator brand for the past few years is really starting to resonate," King said. "What it means is that we appreciate people and their creativity and their wanting to express themselves and live their own life. That's where the young people and the millennials are today. So we really hit a chord with the U.S. consumer, and it's escalating in a much faster past than we even thought it would.”
On the heels of a boosted product portfolio, Adidas announced record sales and earnings in 2016, as the Adidas brand grew 22 percent globally, with a 30 percent increase in North America. The company is expecting continued momentum in North America and double-digit growth in 2017.
"We really turned the corner with being cool with the consumer," King said. "That definitely has happened, but the really exciting thing now is when you look at the opportunity in basketball. When you look at the opportunity in running, it's big. Although almost every major category which are big revenue categories, are doing much better than we were two years ago, we still have a lot more room to grow."
The U.S. market grew in 2016, but Adidas is growing at a faster pace, stealing market share at a time when competitors Nike and Under Armour Inc UAA have struggled. While footwear remains the biggest share of business, King sees the biggest opportunity moving forward in athletic/training apparel.
Basketball Remains In Focus
Adidas has put a renewed focus on basketball, arguably the most important segment, according to King. After letting its NBA jersey deal lapse in favor for individual endorsements, the company signed Houston Rockets superstar James Harden to a $200 million contract, a controversial move at the time. With Harden in the MVP running this year, he's certainly providing momentum in basketball.
"We had the NBA deal which became very, very expensive," King said, "and from a business standpoint it didn’t make sense for us to continue, and it wasn't driving our basketball business. So we decided to change direction and focus more on individual players and specifically James Harden which were very, very excited about."
"We believe that with Harden we have a better platform to go forward. We are now working on redoing all of the basketball products, and we're as committed to basketball as we ever have been. We are because we have to be. It's one of, if not the most important category to succeed in. So I think you'll see us get better at basketball over the next few years."
Seeing The Shift
With Nike falling after missing on Q3 sales, we're starting to see a shift in the industry industry as a whole, as direct to consumer becomes more prevalent at a time when retail sales continue to struggle. But one thing is clear; -- Adidas has become a real player in North America behind King’s leadership, and is confident about taking on the competition.
"We are positioned much better for the current market transformation than any of our competitors. As our brand gets cooler, our business will continue to really start to pick up. We’re thinking about great products, the consumers, and creating a really cool experience for people to touch and use our products and brands," King said.
Throughout his two-year tenure, King has done just that.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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