Adidas’ Status as a Popular Global Sportswear Brand Holds Despite Internal and External Challenges

We think Adidas ADDYY is a leader in athletic and “athleisure” apparel with a narrow moat rating based on an intangible brand asset. While it has been beset with problems since the COVID-19 outbreak, we think it can still make progress under its five-year Own the Game plan (covers 2021-25). For example, its e-commerce, now available in nearly 60 countries, generated an estimated EUR 4.9 billion in sales in 2022 (22% of its total), and we project it will exceed EUR 9 billion and 30% of its total sales by the end of this decade. Further, we think the firm’s new sportswear offerings and plans to improve its position in key categories like running and outdoor will be successful. However, because of heavy competition, the termination of the Yeezy partnership, and its slow recovery in China, our estimates are below or at the low end of Adidas’ Own the Game targets of compound average sales growth of 8%-10%, average net income growth of 16%-18%, and 2025 gross and operating margins of 53%-55% and 12%-14%, respectively.

Although affected by the end of the Yeezy product line, we forecast continuing growth for Adidas in North America, which accounted for 28% of 2022 sales. Despite the pandemic and supply issues, the firm has overcome weakness in U.S. physical retail in the last few years by introducing innovative and fashionable products. We believe it has gained North America market share through fashion products and performance-sports innovations, and we think these products will allow it to maintain share even if the recent athleisure and retro trends, which have helped the brand, cool off.

Although it has had difficulties there of late, we believe Adidas has a strong opportunity in China, now the second-largest athletic apparel market in the world after the U.S. Benefiting Adidas, the Chinese government continues to invest heavily in athletics. We forecast Adidas’ sales in greater China will rise to EUR 5.1 billion in 2027 from EUR 3.2 billion in 2022.