Adidas, under its hotshot new boss, is making big-time moves in a bid to close the gap on giant Nike.
According to new figures released overnight, Adidas has experienced a tremendous turnaround for a company "flailing in America" just two years ago, Yahoo! Finance reported.
Adidas stock is up an extraordinary 78 per cent this year. Nike, in stark contrast, is down 17 per cent while Under Armour is down five per cent.
While most of this recent growth is attributed to longtime CEO Herbert Hainer, bullish investors are looking for new growth to come from his successor, Kasper Rorsted, who officially took the reins on October 1, FOX Business reported.
Rorsted has already been shadowing Hainer for a few months and begins his tenure poised to continue Adidas' momentum.
Here's what we know now, and what to watch going forward.
ADIDAS IS BACK
Adidas has been around for 65 years. It has become a dominant force in worldwide sports during that time, but after losing its position as largest sports-apparel company in the world to Nike more than two decades ago, and then slipping to third place in the US behind Under Armour in 2014, the company has been seen by many analysts as on a slow descent.
However, over the last year, Adidas has started to surge once more. So far in 2016, the company has reported great sales growth and even more impressive earnings growth. During the most recent quarter, Adidas posted sales up 13 per cent year over year and earnings per share up 98 per cent.
To reignite earnings following its sluggish last decade, Adidas has started to kick into high gear using individual athletes like Denver Broncos NFL player Von Miller, as well as non-athlete celebrities like musical artists Kanye West and Pharrell Williams, to market its gear on and off the field. Both of these strategies have been successful in their own right, and we've even seen examples of strategy crossing, such as this image below of Von Miller showing off Adidas cleats co-designed by Kanye West.
INVESTORS EXCITED ABOUT NEW MAN
Adidas revealed in January that Hainer would be stepping down. The announcement that Rorsted would be taking over immediately drove speculation and interest from bullish investors excited to see what this new change in leadership would bring.
Rorsted is the former CEO of consumer brands company Henkel, where he successfully divested around 80 per cent of the company's non-performing segments and brands to focus only on those driving earnings growth. His success has attracted an almost "cult-like following" among investors.
Investors are excited about the prospect of Rorsted working to cull those parts of Adidas that make the company bloated without providing much earnings potential, something Adidas already said it wants to do with the planned divestiture of its golf business.
Another reason investors are looking forward to Rorsted, a Danish citizen now leading the German company, is that he has spent ample time working for companies in the US like Compaq, Oracle and Hewlett-Packard - many investors believe this should help Adidas focus more on the US market, where it recently passed Under Armour to take back its second-place spot behind Nike.
ADIDAS HAS WORK TO DO, BUT ITS IN A GREAT PLACE
Nike and Under Armour, along with other global rivals, are not going to take Adidas' recent competitiveness lying down, of course. Each is working on its own strategies to fight for market share, especially in places like China that could define which company is the best-performing in the years to come. Still, Adidas' transition in the last year has been impressive, and the sales and earnings momentum in the last quarter will get Rorsted started on the right foot.
There is work to do. Adidas' operating margins are considerably lower than Nike's, and almost all of its recent sales growth has come from casual wear, which fashion analysts note can be fickle as trends come and go.
Investors have so far believed that Rorsted could be the one to do the necessary work to prepare Adidas for years of growth, pushing the stock up over 80 per cent since he was announced as Hainer's successor in January. In the quarters and months to come, watch how Rorsted continues to lead Adidas' sales growth, while also increasing the company's profitability and long-term competitiveness.