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adidas Strong Quarter 1 Has One Hidden Issue

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FY 2017 outlook confirmed

Source: adidas Group – adidas records strong start into the year

MAJOR DEVELOPMENTS IN Q1 2017:

  • Currency-neutral revenues increase 16% 
  • Gross margin declines 0.2pp as a result of anticipated FX headwind
  • Operating margin improves 0.9pp to 11.1% 
  • Net income from continuing operations grows 30% to € 455 million
  • Basic EPS from continuing and discontinued operations up 29% to € 2.26 

Unlike Nike who has always done a great job of bringing attention to their quarterly reports, and unlike Under Armour who has been generating the wrong type of attention for their quarterly reports lately, adidas quietly delivered their Q1 2017 report today and the results continue the strong 2016 that the brand had.

Since I hadn’t scheduled the quarterly report I wasn’t able to do any predictions, but I think by now everyone realizes that adidas is one of my favorite marketing companies which has a lot to do with their current success.

If I had to rank brands according to which brands are doing the best on the marketing front (e-commerce platform, content creation, imagery, brand promotion and endorsers) adidas would be #1 and Nike would be #2 in that category, and that is exactly what the sales show in overall performance.

It’s an exciting time for the Three Stripes and I wouldn’t hesitate to say that the marketing is the primary driver of the success of the brand.

All sites are relaying the information shared in the source link, but no one has really focused on what I see as a trend that may come back to haunt adidas. “Inventories increased 23% to € 3.609 billion (2016: € 2.939 billion). On a currency-neutral basis, inventories grew 18%, reflecting higher stock levels to support the company’s top-line momentum.”

Right now the NMD which was one of the best movers for the brand is beginning to sit on shelves. The Stan Smith, which saw a revival is also being marked down in its Primeknit version. The introduction of the NMD_R2 I initially saw as a positive, but by adding Primeknit and increasing the cost of the casual runner the shoe is not performing in quite the same way as the R1 and like the XR1 there is starting to be a bit too much inventory.

What’s different here is that traditionally I would have stated that adidas has to be aware of Nike, but it’s not Nike that may hamper adidas. It’s adidas’ oversaturation of the market as stores begin taking on more adidas product and more Nike which is increasing inventory at warehouses and in stores and forcing many stores to lean on markdowns. With the abundance of Nike brands on sale, the inventory increase could slow things down for adidas. This is something to keep an eye on.

Use the Source link to read more.