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Adidas Is Still Kicking It

The narrow-moat company's strong association with the expansive global soccer market should continue to aid its brand equity.

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 Adidas (ADDYY) is the number-two player in the global athletic market with a deep branded portfolio and a long history of product innovation, operating for almost 70 years. The company sells its Adidas and Reebok brands globally, including in Europe (28% of sales), North America (20%), China (18%), and many emerging markets (13%), indicating that the brands resonate widely with different consumer cohorts. We foresee Adidas benefiting most significantly from China's middle class, which is expected to triple by 2020 and has shown an affinity for soccer (half of the world's top soccer players reside in that market). With only 18% of the Chinese sporting goods market, this is a key growth area for Adidas, in our view, although the company will have to go head to head with leader  Nike (NKE), which has 19% share.

North America has also provided a growth opportunity over the past few years as Adidas has focused on aggressive marketing to tout its differentiated products and has partnered with athletes and social influencers to increase awareness. Products have resonated with consumers, with a push to launches focused on lifestyle wear as opposed to the active wear focus at Nike and  Under Armour (UA). Successful straddling of sport and lifestyle segments through product innovation has led to rising product demand, supporting our thesis that the company should garner excess economic profits over the next 10 years, despite our view that its wins from on-trend fashion are likely to moderate. 

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R.J. Hottovy does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.