By Stephen Wilmot
With its T-shirt wearing tech billionaires and health-conscious consumers, the U.S. is the spiritual home of the global sporting goods boom. But the fitter of the two sportswear giants feeding those consumers just now is European.
Adidas ADDYY -2.29% grew sales by 10% year over year in the quarter through June, according to results published Thursday. That included 16% growth in North America and 27% growth in China. Nike ’s recent return to growth in the U.S. doesn’t seem to be tripping up its German rival. Of the major markets, only Western Europe was flat after some new products didn’t hit the mark.
Investors were worried that Adidas needed a breather after constant-currency growth of 18% in 2016 and 17% in 2017, which was partly driven by a craze for its Stan Smith sneakers. But the slowdown hasn’t been as dramatic as some feared. The stock leapt almost 9% in morning trading.
Arguably even better news was that Adidas isn’t resorting to discounts to keep its top-line growth pumping. Despite the dollar’s strength, which pushes up sourcing costs, the company’s gross margin--the amount it keeps after paying suppliers for the raw goods--rose to 52.3%, from 50.1% a year before.
It is hard to justify why Adidas shares trade at a discount to Nike’s, which have shot higher as evidence of a U.S. turnaround has emerged. Adidas is growing sales and profits faster than Nike, yet even after today’s share-price jump the German stock trades on 23 times prospective earnings, compared with 29 times for Nike. Adidas isn’t facing potentially costly questions from the #MeToo movement either; its U.S. rival last month announced pay adjustments for 10% of its global staff following an executive purge.
It’s getting harder to find discount Adidas sneakers. Bargain hunters should consider its stock instead.
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