Business Strategy and Outlook| David Swartz |
We think Adidas is a leader in athletic and “athleisure” apparel with a narrow-moat rating based on an intangible brand asset. While sales declined in 2020 due to COVID-19 and the recovery has been rocky, we think it can still make progress under its five-year Own the Game plan. For example, its e-commerce, now available in nearly 60 countries, generated EUR 3.9 billion in sales in 2021 (19% of its total), and we project it will reach EUR 7.1 billion in sales (28% of its total) in 2025. Further, we think the firm’s new sportswear offerings and plans to improve its position in key categories like running and outdoor will be successful. However, because of heavy competition, the termination of the Yeezy partnership, and pandemic-related disruption, our estimates are below or at the low end of Adidas’ five-year targets of compound average sales growth of 8%-10%, average net income growth of 16%-18%, and 2025 gross and operating margins of 53%-55% and 12%-14%, respectively.