Though Nike might have something to say about that
An image recognised globally and a company that has changed the way sports are played and experienced – Adidas is a symbol of quality and success. From the humble beginnings of Adi Dassler and his brother Rudolf in Bavaria, to sneakers that have a built-in microprocessor that makes five million calculations per second to adjust their cushioning, Adidas are definitely a company that attracts the interest of the public and traders.
No story about Adidas can go without mentioning Puma. The two Dassler brothers started off together and their success was shared. Their approach was to tirelessly test new materials for their sports shoes and combine them with feedback and endorsements from professional athletes (like Jesse Owens) and this has remained the foundation of everything the company has been doing to this day. But during World War II a conflict between them led to the creation of Adidas and Puma, both headquartered in the Dassler’s hometown of Herzogenaurach. Adi, who’s actual name is Adolf, but for obvious reasons preferred to go by his nickname, founded his company in 1949 and started using three stripes as the signature of his products.
Several landmarks were achieved in the 50s, 60s and 70s. The introduction of football shoes with screw-in studs, making them lighter and easier to play with, was part of the German World Cup win in 1954 over the legendary Hungarians. Following this came the “Kaiser” tracksuit, named after Franz Beckenbauer’s nickname, marking the entrance into apparel for the company.
Adi’s son, Horst Dassler took over in 1978 and although his reign was relatively short-lived, it’s his drive that changed the way sports goods are marketed globally. His approach was to embed the products in everyday life so that they became something that isn’t only used in a strictly sports setting, but are rather a lifestyle statement. Check out Run DMC’s song about their sneakers (made without any approach from the company).
Currently the company has a diverse ownership but the largest portion is held by the BlackRock investment fund with over 15% of stocks. This hasn’t stopped the CEO of the company Herbert Hainer from providing strong leadership since his appointment in 2001, but in the last decade he has been facing a different set of challenges.
The main one has a name – Nike. The American company has muscled in on the football market and has won a large percentage of sales, making it the largest sportswear company in the world, leaving Adidas in second place. The two companies are in a constant battle for signing high profile players and teams across all sports. The most prominent example of the rivalry was the recent deal for Manchester United’s kits for the next 10 years, where Adidas made a better offer promising 750 million pounds and taking Nike’s place in 2015.
In view of expenses like this investors and traders haven’t been too kind in the last year. After reaching a high of $93.05 in December 2013 the stock has seen a steady decline with two several notable dips after earnings. The most recent one came at the end of July when they made a sharp revision of their future earnings guidance due to the geopolitical risks involving Russia, one of its top three markets, where there were plans for opening 150 new stores. Adding to this is the depreciation of the ruble, which has directly taken out 700 million euro from sales in the first half of 2014.
Mr Hainer has been on the offensive recently and has vowed to increase spending for marketing in a bid to catch Nike, as well as a $1.5 billion share buyback, which usually invigorates investors. There has been a rebound from the recent lows of $52.86 with the company currently trading at $61.36, but it remains to be confirmed if this rise can be sustained.
We’ll see if Gerrard and Messi (endorsed by Adidas) will be enough to overcome Ronaldo and Rooney (contracted by Nike) this year, but in the end it comes down to numbers and the competition between the two companies will be interesting to watch as it develops across stadiums, products and marketing.
Adidas and Nike are both available in the Trading 212 PRO platform.