PARIS — Adidas AG is on a digital offensive.
The German activewear giant, which on Wednesday morning raised its earnings guidance for 2020 following a record year of sales and earnings, revealed plans to significantly drive direct sales through the company’s e-commerce platforms, with online sales projected to quadruple to $4 billion by 2020.
Investors smiled on the company’s news, causing Adidas stock to close up 8.9 percent on Wednesday to 174.30 euros, or $183.76 at current exchange.
“Our single most important store in the world is our dot-com store, there is no comparison,” said Kasper Rorsted, chief executive officer of Adidas AG, during a press conference live-streamed from the firm’s headquarters in Herzogenaurach, Germany. “We will aggressively invest in all of the digital aspects of our company. This is only the beginning.”
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As Kanye West’s Yeezy Boost 350 v2 continues to generate “brand heat,” Adidas is also in serious growth mode in the U.S., where sales grew 24 percent in 2016. Still, the brand has some serious catching up to do with Nike, the category leader there, explained the executive. He added that nipping at Adidas’s heels, in the number-three spot in the U.S. market, is Under Armour, despite its business being four-and-a-half times smaller.
As such, Adidas will continue to invest “over-proportionally” in its U.S. activity, namely on infrastructure, personnel, marketing and point-of-sale. “We are happy with the progress but very unhappy with where we are,” said Rorsted, describing the U.S. as a “moving target.”
In bullish mode, the company said it intends to strongly accelerate sales and earnings growth until 2020 as part of its “Creating the New” strategic business plan. Net income is now expected to grow between 20 percent and 22 percent on average annually over the next three years.
The activewear firm recorded a net loss of 10 million euros, or $10.8 million, in the fourth quarter ended Dec. 31, versus a net loss of 44 million euros, or $48.8 million, in the same prior-year period.
The gross margin — a key indicator of profitability — rose to 48.8 percent from 47.2 percent in same the prior-year period, reflecting improvements in the pricing, product and channel mix, offsetting negative effects from currency headwinds.
Sales for Adidas in the three months ended Dec. 31 rose 12 percent to 4.69 billion euros, or $5.1 billion.
Full-year net income at the company advanced 59.3 percent to 1.02 billion euros, or $1.13 billion. Sales were up 14 percent to 19.29 billion euros, or $21.35 billion, driven by double-digit sales increases in its Sport Performance category as well as in the Adidas Originals and Adidas Neo lines. All geographic markets also registered double-digit gains.
Dollar figures are converted at average exchange rates for the periods to which they refer.
The breakdown of sales for Adidas’ performance and lifestyle categories was roughly 70 percent versus 30 percent in 2016, although Rorsted argued there are not clear-cut boundaries between the segments.
“Our roots, our heritage and our future lie in the fact that we want to be a sports company, and sports has to be the dominant part of the business. But we have created a borderline which is artificial,” he said. “The Stan Smith, which is a lifestyle shoe today, was a performance shoe. The handball shoes that you had in the Eighties today are lifestyle shoes….We will continue to have a balance, because that is how young people shop.”
Looking forward, Adidas by 2020 plans to double revenues in six targeted “mega cities” — New York, Los Angeles, London, Paris, Shanghai and Tokyo — places that “help set the trend for the rest of the industry.”
Other focuses include the standardization of business processes within the company in order to maximize efficiency.
With the conference falling on International Women’s Day, Rorsted said moving more women into management positions was a priority, although “no quota will be set.”
“We will not fix the balance overnight,” he said.
Today, for instance, of a new top management group that has been installed right underneath Adidas’ board of directors, currently only one out of 19 members is female.
Planned improvements in digitalization processes at every stage of the value chain are targeted to accelerate building direct relationships with the consumer, meanwhile, with digital technologies such as 3-D creation, 3-D printing and smart manufacturing methods also to be expanded.
In 2016, a pilot “Speedfactory” — a production facility using automated, intelligent robotic technology designed to speed production and have a positive impact on the environment — was set up in Ansbach, Germany, with mass production to commence in the unit this year. A second Adidas Speedfactory is due to open in Atlanta in the U.S. later this year, with the system also geared to permitting within-season orders and streamlining inventories.
In 2016, around 15 percent of total company sales were generated with products manufactured on Speed programs. The company aims to increase the share of “speed-enabled” products to at least 50 percent of net sales by 2020, a move that is likely to positively impact profitability, with the share of full-price sales on “speed-enabled” products targeted to be 20 percent higher compared to the regular range, the company said.
Following the divestiture of Rockport in 2015 and Mitchell & Ness in 2016 and with the sales process under way for the golf brands TaylorMade, Adams Golf and Ashworth, Adidas also revealed it is seeking a buyer for the ice hockey brand CCM Hockey.
Asked about whether current political issues like nationalism was of concern, Rorsted said: “Protectionism for now has been more talk than fact, and the reality — if I take the U.S. — is that all sporting goods suppliers will be in the same position, because the vast majority of sourcing does not take place in Western countries.
“It will be an impact on the industry, and one has to ask: ‘Do you want to impact an industry that drives health?’ Clearly, we cannot impact a lot of what [President] Trump’s policies are, but we’ll deal with them as they come,” he said.