Sneakernomics: adidas on the Upswing?

(source: FORTUNE)

Nike’s German rival finds fashion and fitness gear is a better recipe for profits than golf.

Adidas SE’s ADDYY -1.94% recovery continued in the first quarter, despite ongoing problems with its TaylorMade golf equipment and apparel business.

The German company reported better-than-expected sales growth, helped by a strong performance from its running and fashion businesses as well as a recovery at its struggling North America arm.

Sports-inspired fashion brands Originals and NEO both grew sales by over 10%, while fitness brand Reebok reported a currency-neutral rise of 9%, compared to just 1% in the fourth quarter.

Sales rose 17% percent to 4.08 billion euros ($4.54 billion), or by 9% excluding the impact of currencies, ahead of average analyst forecasts for €3.91 billion.

“After getting off the starting block well this year, we are optimistic about our prospects for the full year,” Chief Executive Herbert Hainer said.

Adidas launched a new five-year strategy that focuses on improving its supply chain and achieving the world’s largest cities, (hence the strong performance of running and gym-related gear, in stark contrast to the issues at TaylorMade). It aims to lift sales by almost half to above €22 billion euros by 2020.

In North America, where Adidas has been spending heavily on marketing to try to make up ground lost to market leader Nike NKE 0.08% as well as fast-growing Under Armour Inc UA 4.87% , currency-neutral sales rose 7% in the first three months of the year after a 4% fall in 2014. The company had slashed prices last year to clear a mountain of unsold TaylorMade inventory, and expects this year’s margins to look a lot stronger as a result. Revenue at TaylorMade fell 9% on the year, as club sales more than offset a rebound in apparel sales.

Adidas shares, which have already risen almost a third this year, rose nearly 3% in early trade, while the German blue-chip index rose 0.5%.

Attributable net profit rose 8% to €221 million euros, below forecasts for €232 million but including a goodwill impairment of €18 million due to a change in reporting.

Adidas reiterated it expected 2015 sales to rise by a medium single-digit percentage rate on a currency neutral basis, after a 6 percent increase in 2014, while net profit from continuing operations should climb 7-10 percent.