Adidas gets hit with rare double downgrade as BofA calls the end of the 'casualization' trend

By Steve Goldstein

Adidas shares were the worst performing of the 600 top stocks in Europe on Tuesday

Adidas shares were under pressure on Tuesdaay

Adidas shares stumbled on Tuesday, with the apparel maker's stock the worst out of Europe's top 600 stocks, after a brokerage issued a rare double-downgrade.

Adidas stock (XE:ADS) fell 7% - the worst performing component of the Stoxx Europe 600 XX:SXXP - as Bank of America cut its rating to underperform from buy.

Adidas' price target was cut to EUR160 from EUR213 as analysts argued that the turnaround story is well known, upgrades to earnings estimates stopped months ago and there will likely be a slowdown in organic sales growth after the World Cup.

But the pessimism didn't end with Adidas.

The same brokerage cut its rating on sporting-goods retailer JD Sports Fashion (UK:JD) to neutral from buy as it kept its neutral rating on Adidas cross-town rival Puma (XE:PUM) and its rating of On Holding (ONON) at buy.

They noted over the past 18 years, the downcycles in the sporting-goods industry usually last one to two years. So that means, historically, the current downcycle beginning in the second quarter of 2023 should be ending now.

But it's not.

"Almost all current KPIs (brand traction, revenue and earnings trends, [Bank of America] card data) and forward-looking KPIs (Asian supplier sales, exports from producing countries, macroeconomic data, company comments on 2026, consensus estimates) support a scenario of continued slow growth," said the note from analysts led by Thierry Cota. KPIs refers to key performance indicators.

Organic sales growth of listed sportswear brands. Includes: On, adidas, Puma, Nike, Under Armour, lululemon, Deckers, Anta, Li Ning, Asics, Columbia.

The 20-year casualization trend - with sneakers rising from 20% of market share of footwear sales to 50% - culminated with Covid and is largely complete, they said. And sports participation, at least in the biggest market of the U.S. with more than 40% of revenue, is not increasing.

Now, the analysts expect, sales will be on par with global GDP growth - of about 5%, including inflation - but not much faster than it.

The pessimistic note comes after a rally for Nike (NKE) shares, helped by insider purchases.

The analysts pointed out while the strength of Nike's turnaround is critical for the sector, it is not the only driver of the sector cycles.

-Steve Goldstein

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01-06-26 0549ET