Yeezy Boost, NMD — meet Tubular and Gazelle.
Adidas AG is banking on the latest sneaker models in its Adidas Originals lifestyle division to keep the cash registers ringing in the second half, after posting its highest organic second quarter growth rate in more than a decade.
Speaking from Rio de Janeiro on the eve of the Olympic Games opening ceremony, Adidas chief executive officer Herbert Hainer gave a rundown of the products in the pipeline, saying he was confident the company could maintain its strong momentum.
“The stellar financial performance in the second quarter is proof positive that our strategy is paying off. I am proud to confirm that we are in great shape,” he said, adding that, “2016 will be a year of records for the Adidas Group.”
The executive was commenting on the company’s results for the last time before handing the baton to his successor, Kaspar Rorsted, on Oct. 1. Hainer has turned around the business after a dire performance in 2014, when repeated profit warnings prompted shareholders to call for his resignation.
“I saved the best for last,” he remarked.
Despite the better-than-expected results, Adidas shares closed down 2 percent to 145 euros, or $162.30, on the Frankfurt Stock Exchange as analysts zeroed in on the group’s profitability forecast and concerns that Nike’s decision to exit golf hardware could impact the sale of its rival’s golf brands.
“This doesn’t change our strategy at all,” insisted Hainer, referring to the ongoing talks on the disposal of its TaylorMade, Adams and Ashworth brands. He noted that the TaylorMade-Adidas Golf division turned profitable again at the end of the second quarter, which should help mitigate the impact of rising sourcing costs in Asia on the group’s gross margin in the second half.
But analysts were disappointed with the revision to the group’s earlier forecast for a gross margin reduction of up to 50 basis points from 48.3 percent last year. It now expects a decline of up to 30 basis points.
Adidas last week lifted guidance for 2016 on the back of strong preliminary results, which widely beat analysts’ consensus estimates.
On Thursday, it confirmed group revenues in the quarter totaled 4.4 billion euros, or $4.95 billion, up 13 percent in reported terms and 21 percent on a constant-exchange basis. Dollar figures are calculated at average exchange for the period to which they refer.
Adidas continues to gain steam in the U.S. market as it claws back market share from Nike and Under Armour, with sales in currency-neutral terms growing 25.6 percent in North America in the three months ended June 30, compared with growth of 21.6 percent in the first quarter.
Revenues were up 29.2 percent in Western Europe, 30.1 percent in Greater China, 7.9 percent in Latin America and 7.2 percent in Russia/CIS.
Revenues for the Adidas brand rose 25 percent in the quarter, with lifestyle and performance categories recording strong double-digit growth across the brand’s focus markets.
It was a strong season for football, thanks to the UEFA Euro 2016 soccer championship. Sales in the second quarter rose 17 percent and the category is on track to reach record revenues of 2.5 billion euros, or $2.8 billion, in 2016.
Adidas plans to leverage the popularity of some performance football cleats to create new lifestyle shoes. The first of these, the Ace 16+ Purecontrol, is derived from the laceless Ace 16+ boot, worn by French midfielder Paul Pogba on the pitch.
“The shoe, which was launched at the beginning of July, marks the beginning of a new focus which will see future football products followed by similar off-pitch alternatives,” Hainer noted.
Revenues in the running category were up 30 percent in the second quarter because of products including the UltraBoost Uncaged shoe. “In the U.S. alone, we sold over 16,000 pairs of UltraBoost Uncaged within 24 hours and through e-commerce we sold 7,000 pairs within 15 minutes,” the executive said.
Adidas hopes to keep the segment red-hot with the addition of colored iterations of its signature white Boost midsole.
Revenues at Adidas Originals grew 50 percent in the second quarter, fueled by the hugely popular NMD and Yeezy Boost shoes. Its Stan Smith, ZX Flux and Superstar franchises also maintained strong momentum, with the Superstar flying off shelves in all major key retailers in Western Europe and North America.
Adidas recently relaunched the Gazelle sneaker, originally introduced in the 1960s, and has revealed plans to extend its partnership with Kanye West beyond its current lifestyle focus to encompass performance designs.
The company has tapped Pharrell Williams, another one of its collaborators, to create new versions of the NMD, which dropped on July 22. “While the shoe will drive further brand heat for our NMD franchise, Q3 will also see a stronger focus on our Tubular and Gazelle silhouettes,” Hainer said.
The Reebok brand saw sales progress 7 percent in the quarter, with double-digit improvements in most key markets, excluding North America, where it continues to streamline its U.S. business.
Reebok is the leading provider of CrossFit apparel and footwear and plans to enhance the combat training side of the business because of its new campaign with former UFC champion Ronda Rousey.
Women were a strong driver for the training segment, which grew 11 percent in the quarter. “While we continue to see robust growth in both the men’s and women’s apparel business, it is especially our strengthened focus on women’s training, which is clearly starting to pay off and gain traction,” said Hainer.
The group plans to build on the strong performance of its TechFit and ClimaChill franchises in the second half and recently unveiled Karlie Kloss as the face of its Stella McCartney for Adidas fall campaign.