Skip to Content

Why Adidas Shares Are Soaring

Adidas AG shares soared as growth in Asia and online helped maintain its half-decade hot streak.

The German sports apparel maker benefited from double-digit growth in China in the first quarter, which pushed the proportion of sales from the Asia-Pacific region to more than a third. E-commerce revenue gained 40%.

The combination helped Chief Executive Officer Kasper Rorsted improve margins and maintain 2020 targets even as demand shrinks at home and supply-chain problems curb growth in North America. The stock rose as much as 7.5% to a record Friday morning in Frankfurt, giving the company a market value of 49 billion euros ($55 billion).

The company’s full-year guidance is now looking conservative, thanks to a “pleasant surprise” in first-quarter sales and “stunning” improvement in gross margin, Joerg Philipp Frey, an analyst at Warburg Research, said in a note.

Beset by shrinking sales at home and supply-chain problems flaring up in North America, Adidas’s recent successful track record appeared to be in danger. The company has promised to fix both those problems in the back half of 2019, possibly returning to the rapid pace of recent years.

The stock has attracted a bit of attention from short sellers, which may be adding to volatility in the stock. Investors have bet against more than 2% of the company’s shares, according to IHS Markit data. While it’s not a huge position, it’s double the amount in late March.

Global sales reached 5.88 billion euros, ahead of the 5.8 billion-euro average estimate, the company said. Operating profit of 875 million euros beat the highest estimate.

Meantime, Adidas is getting a boost from sales growth of 16% in Greater China. That eased the pain of business in Europe, where revenue fell 3%, and North America — where Adidas stole market share from rival Nike Inc. in recent years — which ticked up just 3%.

Adding Capacity

The shoemaker is adding capacity for midpriced items and the company expects it won’t face constraints next year, Rorsted said in an interview on Bloomberg Television.

In Europe, the CEO has called for focusing more on the company’s roots in sports. One indicator will be the success of the new line of Ultraboost 2019 sneakers.

And with the slowdown in demand for retro footwear like the Stan Smith and Superstar, investors will want to see how Kanye West’s Yeezy line is doing along with the new “Game of Thrones” collaboration. They’re also awaiting more details on the timing of a new partnership with pop star Beyonce.

The Herzogenaurach-based company’s stock has climbed 34% this year and is on pace for its fifth straight annual gain.