PARIS — On track to meet its full-year outlook coming off a strong third quarter, Adidas on Thursday said Greater China represents the biggest overall opportunity for expansion, with e-commerce — the company’s fastest-growing channel in all regions worldwide — contributing to its robust growth in the market and beyond.
Net income from continuing operations for the full year is expected to increase at a rate of between 26 and 28 percent to a level of between 1.36 billion euros and 1.39 billion euros.
Sales in currency-neutral terms are expected to grow between 17 and 19 percent.
Adidas counts approximately 10,000 stores in Greater China, a tally that’s expected to double by 2020. In a conference call with journalists, Adidas chief executive officer Kasper Rorsted said online sales in the market are currently in the single digits “but we expect that number to change over time due to the significant impact of digital.”
“I think a lot of people in the West underestimate the sophistication of the digital marketplace in China, and that is why we expect a significant increase of our growth to come not only from our own online store, but also our strategic relationships with the likes of the Alibabas,” said Rorsted.
“More than 40 percent of all purchases in our stores in China are done by mobile pay. China is, as we speak, experimenting with facial recognition pay. No other country in the world is doing that. Apple just launched a phone, the iPhone X, where facial recognition is one of the biggest features, China is now putting that into action in real life,” he added.
The combined sales of the Adidas and Reebok brands in the third quarter grew in all regions except Russia, Rorsted said, with sales in Greater China and North America, which represents approximately 37 percent of the group’s total business, rising 28 percent and 23 percent, respectively.
In the context of a flat market, Adidas has almost “more than doubled our market share position” in North America over the past few years, Rorsted said.
The executive said that he does not expect an incident involving James Gatto, Adidas’ Oregon-based director of global sports marketing for basketball, to impact the company’s short or long-term business. Gatto has been linked to an alleged scheme to financially bribe high school-age basketball players to attend certain universities with which it had sponsorship deals.
Basketball represents approximately 1.7 percent of the group’s global business, and in the U.S. less than 1 percent.
Regarding Russia, which represents less than 3 percent of total business, Rorsted said: “We continue to see a market in contraction and have proactively addressed it.” The plan is to shutter 50-plus stores in the fourth quarter, on top of the 141 stores closed so far this year.
The German sporting goods firm posted net profits of 527 million euros in the three months ended Sept. 30, up 36 percent year-over-year.
Group sales increased 9 percent to 5.68 billion euros, driven by a 13 percent increase in sales at the Adidas brand, which saw double-digit increases in the running and outdoor categories, as well as at Adidas Originals and Adidas Neo.
Gross margin, a key indicator of profitability, increased by 2.4 percentage points to 50.4 percent, boosted by better pricing and product mix, which the group said more than offset higher input costs as well as unfavorable currency developments.
The company in the quarter completed the divestiture of its TaylorMade and CCM Hockey businesses.
In terms of categories, Rorsted said the group is “unhappy” with the performance of apparel at Adidas, which reflected an overall weakness in the licensing business. On a positive note, women’s continues to outperform, with strong double-digit growth, he said.
Footwear sales grew in the high-single digits in the quarter, Rorsted said, stressing the importance of having a more balanced portfolio than in the past “where we’ve been highly reliant on a Superstar or a Stan Smith, which meant that when the cycle went down, as it does for every product at a given stage, of course the business will go down.”
Adidas continues to run a growth rate for its Originals business of about 20 percent, he said.
With newly signed collaborator Victoria Beckham on board to help boost the women’s business, and a Reebok x Victoria Beckham collection due out late next year, Rebook is expected to swing back to profit in the U.S. in 2018, as it continues its turnaround program in North America, Rorsted said.
Beckham joins a set of style influencers that includes Ariana Grande, Gigi Hadid and Teyana Taylor. Beckham’s signing “shows our commitment to the Reebok brand and the female market,” said Rorsted. “We believe that she will dramatically build our female business, which is the origin of where Reebok came from.”