It's not just soccer kicking Adidas into shape, it's style. Amid any gathering of millennials in London or New York, plenty will be sporting its classic white Stan Smith trainers. Adidas sneakers are hot right now, and that's helped the sportswear retailer raise its full-year profit forecast for the second time in less than three months – along with expectations of a boost from this summer's Euro 2016 football tournament. It expects net income from continuing operations to rise between 15 percent and 18 percent this year, well ahead of the previous range of 10-12 percent.
Particularly pleasing is that gross margin rose in the first quarter. It had been expected to decline because of the stronger dollar, which makes sourcing from Asia more expensive. Stronger pricing helped, thanks in part to Adidas styles being in demand.
Adidas has been trying to improve its Ebitda margins, which trail Nike and Under Armour, so this is welcome.
The positive earnings momentum has driven Adidas shares higher -- even before the arrival of new CEO Kasper Rorsted from Henkel in August. They rose almost 7 percent on Wednesday, and are up about 50 percent in a year, significantly outperforming Germany's DAX Index.
Over five years, Adidas has traded at a discount to Nike on price to earnings. The U.S. company's lead has been eradicated. That might be justified given the hopes around the recovery at Adidas, and the belief that Nike margins may have peaked, but it leaves little room for any slip-ups on the courts.
To sustain – or even extend – the slight premium to Nike, Rorsted has to keep a lid on costs. Marketing expenses are expected to rise later this year ahead of the European soccer championship and Brazil's Olympics. He must also decide what to do with Adidas's problem kids, golf brand TaylorMade and Reebok. He should sell the poorly performing TaylorMade, but there's a case for keeping Reebok as it could help Adidas develop its womens "athleisure" business.
Given that Adidas is becoming known as much for its presence on the catwalk (it collaborates with Kanye West) as on the sports field, it needs to behave more like a fast-fashion retailer.
Getting enough of the styles that shoppers want into stores, and cutting back on slow sellers would be a way to boost that lagging margin, alongside cost-cutting. It's making progress, delivering new, in-demand styles on a regular basis. But, fashion is notoriously fickle, and trends can slip away as quickly as they arrive.
Still, borrowing a trick from fast-fashion pioneers Zara and H&M would help Adidas earnings stay as on trend as a pair of gleaming Stan Smiths.
To contact the author of this story: Andrea Felsted in London at firstname.lastname@example.org