Why delayed gratification is key for Adidas

Adidas says it will be “disciplined” in its release of highly sought after trainer lines in order to keep demand (and therefore prices) high, as the sportswear company delivers better-than-expected results. 

What’s going on

The company had around 8% revenue growth in the first quarter, and a significant return to big profits following a difficult post-Yeezy period. 

The reason, says CEO Bjørn Gulden in a statement, is that the lifestyle segment, comprising some of its most desired and most venerable models, is driving that growth. 

“The demand for our footwear franchises Samba, Gazelle, Spezial, and Campus is still very strong and growing.”

Leadership has maintained a firm line on buying in order to make sure both the brand and retailers are not over-inventoried. “We think that this year is about building a solid growth, building a quality growth, making sure that we and our retail partners don't need to discount.”

Maintaining control over pricing remains imperative. 

The profit motive

Vitally, profitability grew 6.4% percentage points to a gross margin of 51.2%, the result of reduced discounting, healthier inventory, and a more favourable mix. In addition, in terms of raw numbers, the company is now lapping the drop in revenues that was the result from abandoning the Yeezy brand, following Ye’s controversial remarks. 

But it’s worth digging into how the company is thinking about marketing as a key driver, having increased marketing by 9% in the quarter, all of which will push the percentage of marketing to sales to 12%. 

“We still expect significant FX headwind. And as we said many times, we will continue to kind of overinvest in marketing and sales to build the momentum then to get the leverage as we grow,” Gulden recently told investors. “I'm very happy with the way things have developed in the last three months. It shows the strength of the brand and the strength of this company.”

In context

It’s a big year for sport with a Euros football competition and the Paris Olympics, and both events are expected to drive sales of performance lines. However, Adidas’s results follow the initially shocking news that the sports brand would no longer sponsor the German national team, as Nike agreed a much higher contract than the €50m that the deal had previously cost the brand. 

Sourced from Adidas, Seeking Alpha