Adidas Continues Its Winning Streak

(Bloomberg) --

Adidas AG shares soared to a record as the German sportswear giant tapped the marketing power of soccer star Lionel Messi and celebrities like Kanye West to boost sales in China, extending its half-decade hot streak.

The German sports apparel maker benefited from double-digit growth in the Asian nation in the first quarter, compensating for weakness in Europe and North America. E-commerce revenue gained 40 percent, and the stock rose as much as 7.8 percent on Friday.

Kasper Rorsted has boosted Adidas's market value by 20 billion-euro ($22 billion) since coming in as CEO in late 2016. The Danish executive Friday pledged to fix three key problem areas: new production is set to relieve supply constraints in North America and European sales should return to growth by the end of this year. Adidas, now worth about 49 billion euros, also said the ailing Reebok brand should revive in 2020.

The company's full-year guidance is now looking conservative, thanks to a “pleasant surprise” in first-quarter sales and “stunning” improvement in gross margin, Joerg Philipp Frey, an analyst at Warburg Research, said in a note.

Beset by shrinking sales at home and supply-chain problems flaring up in North America, Adidas's recent successful track record appeared to be in danger. That has attracted a bit of attention from short sellers, which may be adding to volatility in the stock.

Investors have bet against more than 2 percent of the company's shares, according to IHS Markit data. While it's not a huge position, it's double the amount in late March.

Global sales reached 5.88 billion euros, ahead of the 5.8 billion-euro average estimate, the company said. Operating profit of 875 million euros beat the highest estimate.

Meantime, Adidas is getting a boost from sales growth of 16 percent in Greater China. That eased the pain of business in Europe, where revenue fell 3 percent, and North America -- where Adidas stole market share from rival Nike Inc. in recent years -- which ticked up just 3 percent.

Rorsted said athletes it sponsors, like FC Barcelona's Messi, and celebrities like West are driving sales in China. “On the influencers side, we have probably the best team in the industry,” he said.

Adding Capacity

The shoemaker is adding capacity for midpriced items and the company expects it won't face constraints next year, Rorsted said in an interview on Bloomberg Television.

In Europe, the CEO has called for focusing more on the company's roots in sports. One indicator will be the success of the new line of Ultraboost 2019 sneakers.

And with the slowdown in demand for retro footwear like the Stan Smith and Superstar, investors will want to see how Kanye West's Yeezy line is doing along with the new “Game of Thrones” collaboration. They're also awaiting more details on the timing of a new partnership with pop star Beyonce.

The Herzogenaurach-based company's stock has climbed 33 percent this year and is on pace for its fifth straight annual gain.

--With assistance from Matthew Miller, Richard Weiss and Karen Lin.

To contact the reporter on this story: Tim Loh in Munich at tloh16@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Thomas Mulier

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