Adidas rebooting Reebok to drive US sales growth

Dive Brief:

Adidas pledged to increase U.S. sales and resuscitate its Reebok brand despite reporting third quarter net profits that increased to €386 million ($428 million U.S.) from €311 million in the same quarter last year.
Adidas brand Q3 revenues rose 20% on a currency-neutral basis, fuelled by double-digit sales increases in Sport Performance, Adidas Originals and the Adidas neo urban wear unit, the company said. Reebok brand revenues grew 7% during the quarter.
Adidas CEO Kasper Rorsted said in a statement that the athletic apparel retailer expects earnings and revenue growth in 2017 to be flat with this year’s “truly exceptional results" and that next year, profitability would be its focus. Adidas shares fell almost 7% midmorning: “The best times are over" for the company, one trader told MarketWatch.

Dive Insight:

After five bad years in the U.S. — and after relinquishing its number two spot behind rival Nike to Under Armour — Adidas’ U.S. sales have overtaken Under Armour to regain second place, according to research from NPD Group sports retail analyst Matt Powell.

"I am extremely happy to be the CEO of a company that is doing so well," Rorsted said Thursday. "The great momentum across all major markets shows the strength of our strategy ‘Creating the New’ because it is driving significant improvements in the desirability of our brands across the globe."

But Rorsted, who took over as CEO early this year, said Thursday the company still needs to boost its U.S. sales, in particular its Reebok brand. “We’re not going to have eternal patience for seeing results,” Rorsted said of Reebok on a conference call Thursday, according to the Boston Globe.

Rorsted told analysts that Adidas will be relocating Reebok’s operations to Boston, a restructuring effort that will entail Reebok store closings and the loss of some 150 jobs. Adidas aims to “clarify the roles” of its U.S. offices, and wants Reebok to be operating in a “vibrant urban area,” Reebok president Matt O’Toole said.

Adidas’s overall comeback strategy includes expanding its collection of streetwear and ramping up its partnership with athletes as well as creatives. The retailer announced in June that it is expanding its relationship with music and fashion icon Kanye West, developing “a Yeezy-branded entity creating footwear, apparel and accessories for all genders across street and sport.” The German sportswear giant described the deal as "the most significant partnership ever created between a non-athlete and an athletic brand.”

The move to occupy more space in non-sports footwear is paying off for Adidas, according to Cowen & Co. analyst John Kernan. Earlier this month, Kernan raised his estimates for Adidas' second half and fiscal 2017 sales and earnings per share, citing the brand's momentum in North America and opportunity to boost margins, according to CNBC. "As consumer tastes and preferences have shifted over the last year to a more retro and casual aesthetic, Adidas has led the way," Kernan said.