adidas AG
adidas AG - Financial and Strategic Analysis Review
Publication Date: May-2020
Company Snapshot
Key Information
adidas AG, Key Information
Web Address
Financial year-end
Number of Employees
ETR
Source : GlobalData
Key Ratios
adidas AG, Key Ratios
P/E
EV/EBITDA
Return on Equity (%)
Debt/Equity
Operating profit margin (%)
Dividend Yield
Note: Above ratios are based on share price as of 21-May-2020
Source : GlobalData
Share Data
adidas AG, Share Data
Price (EUR) as on 21-May-2020
EPS (EUR)
Book value per share (EUR)
Shares Outstanding (in million)
Source : GlobalData
Performance Chart
adidas AG, Performance Chart (2015 - 2019)
Source : GlobalData
adidas AG- Financial and Strategic Analysis Review
Reference Code: GDRT27031FSA
Company Overview
adidas AG (adidas) designs, manufactures and markets
athletic and sports lifestyle products. The company’s
product portfolio includes footwear, apparel and hardware
www.adidas-group.com such as bags, bats and balls. It markets products under
December adidas and Reebok brand names. The company distributes
59,533 and sells products through own-branded stores, retail
ADS stores, wholesale stores, sporting goods chains, buying
groups, department stores, lifestyle retail chains, e-tailers,
and franchise stores. It also markets products through
e-commerce platform and mobile shopping apps.
SWOT Analysis
20.33
10.96.00 adidas AG, SWOT Analysis
29.06 Strengths Weaknesses
0.70
11.25 Global Presence and Liquidity Position
1.65 Operational Network
R&D
Financial Performance
Opportunities Threats
216.70
9.70 Positive Outlook for Global Intense Competition
34.68 E-retail Market
197.61 Counterfeit Goods Market
Growing Footwear Market
Foreign Exchange Risks
Strategic Agreements
Source : GlobalData
Financial Performance
The company reported revenues of (Euro) EUR21,915
million for the fiscal year ended December 2018
(FY2018), an increase of 3.3% over FY2017. In FY2018,
the company’s operating margin was 10.8%, compared
to an operating margin of 9.6% in FY2017. In FY2018,
the company recorded a net margin of 7.8%, compared
to a net margin of 5.2% in FY2017.
The company reported revenues of EUR5,883 million
for the first quarter ended March 2019, an increase of
12.4% over the previous quarter.
Reference Code: GDRT27031FSA
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Key Information
adidas AG, Key Information
Corporate Address Adi-Dassler-Strasse 1, Ticker Symbol, Stock ADS [XETRA]
Herzogenaurach, Bayern, 91074, Exchange
Germany
Telephone +49 9132 840 No. of Employees 59,533
Fax +49 9132 842241 Fiscal Year End December
URL www.adidas-group.com Revenue (in USD Million) ₹ 26,465.9
Industry Consumer Goods, Retail, Revenue (in EUR Million) ₹ 23,640.0
Wholesale & Foodservice
Locations Argentina, Australia, Austria, Belgium, Brazil, Bulgaria, Canada, Chile, China, Colombia, Croatia,
Cyprus, Czech Republic, Denmark, Egypt, Finland, France, Germany, Greece, Honduras, Hong Kong,
Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Latvia, Malaysia, Mauritius,
Mexico, Morocco, Netherlands, New Zealand, Norway, Panama, Peru, Philippines, Poland, Portugal,
Romania, Russia, Serbia, Singapore, Slovakia, South Africa, South Korea, Spain, Sweden,
Switzerland, Taiwan, Thailand, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States,
Uruguay, Venezuela, Vietnam
Source : GlobalData

Company Overview
adidas AG (adidas) designs, manufactures and markets athletic and sports lifestyle products. The company’s product portfolio
includes footwear, apparel and hardware such as bags, bats and balls. It markets products under adidas and Reebok brand
names. The company distributes and sells products through own-branded stores, retail stores, wholesale stores, sporting goods
chains, buying groups, department stores, lifestyle retail chains, e-tailers, and franchise stores. It also markets products through
e-commerce platform and mobile shopping apps. Adidas business operations span across the Americas, Europe, Asia-Pacific,
Africa and the Middle-East. adidas is headquartered in Herzogenaurach, Bayern, Germany.

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adidas AG - SWOT Analysis

SWOT Analysis - Overview
adidas AG (adidas) is a manufacturer and supplier of sports lifestyle and athletics products. Financial performance, R&D,
and global presence and operational network are the company's major strengths, whereas liquidity position remain causes
for concern. Positive outlook for e-retail market in Europe, strategic agreements and growing footwear market are likely to
offer growth opportunities to the company. However, intense competition, counterfeit products market, and foreign
exchange risks could affect its business operations.

adidas AG - Strengths
Strength - Global Presence and Operational Network
Global operations and strong operational network enable the company to efficiently manage the development, production,
planning, sourcing and distribution related activities. As of December 2019, the company operated over 2,500 own-retail
stores; 15,000 mono-branded franchise stores and 150,000 wholesale stores across the globe. It also markets products
under adidas and Reebok brands through e-commerce stores in 40 countries and mobile shopping apps in 25 countries.
The company’s mobile app reported over seven million downloads at the end of December 2019. adidas has two
production facilities in Germany and the US. The company outsources most of its production to independent manufacturing
partners. As of December 2019, it had 138 independent manufacturing partners, operating 336 manufacturing facilities. It
has operations across the Americas, Europe, Asia-Pacific, Africa, and the Middle-East. The company had over 73% of its
independent manufacturing partners located in Asia, the Americas (17%), and Europe (9%). The company’s majority of its
products are produced by 45 manufacturing partners at 156 facilities across the world. In FY2019, the company produced
over 1,103 million units with 528 pieces of apparel, 448 pairs of footwear and 127 million pieces of hardware such as bags
and balls. In FY2019, the company’s third-party manufacturing partners are mainly located in Asia. It sourced over 98% of
the footwear, 91% of the apparel, and 81% of hardware volumes from Asia.

Strength - R&D
The company’s R&D focuses on development of new products leveraging emerging technologies and digitalization of its
value chain. The company’s Future team focuses on developing innovative capabilities such as new materials,
consumer-centric scientific research and new production processes to deliver a sustainable concept for development. Its
innovation principles are classified into five pillars – athlete innovation, manufacturing innovation, digital and experience
innovation, sustainability innovation and female athlete innovation to develop appropriate products for consumers and
athletes. Adidas also focuses on development of products leveraging advanced technologies such as digital
communications, data sensors, sports science, data analytics, and digital light synthesis. Its R&D team also operates in
collaboration with local, national and international government organizations, athletes and consumers, research
organizations, and industry-leading companies to develop new innovative products and manufacturing processes. In
FY2019, the company secured three projects – to conduct research on a class of fully recyclable sporting goods;
development of eco-system for internet-based services catering to consumers; and human or computer interaction
concepts for wearable computing trends. In FY2019, adidas incurred expenses of EUR152 million on R&D, which as a
percentage of revenue, stood at 0.6%.

Strength - Financial Performance

Strong financial performance enables the company to provide higher returns to its shareholders, enabling it to attract further
investments. Growth in revenue and profitability also enhance the company’s ability to allocate adequate funds for growth
and expansion. In FY2019, adidas reported revenue of EUR23,640 million as compared to EUR21,915 million in FY2018,
registering an annual growth of 7.9%. Revenue grew by 6% on currency-neutral basis, which resulted from high demand
from Asia-Pacific, North America, Russia and Latin America. Growth in revenue was also due to 6%, 9% and 27% increase
in revenue across footwear, apparel and hardware product categories, which resulted from growth in Sport Performance
and Sport Inspired, and running and training categories. In FY2019, the company’s operating income was US$2,660 million
as compared to US$2,368 million in FY2018, at an annual growth of 12% in FY2019. The operating margin higher than the
industry average indicates the company’s ability to create value for shareholders with positive operating cash and fulfill
obligations towards the creditors. Similarly, the company’s net income grew from US$1,976 million as compared to
US$1,702 million in FY2018, at an annual growth of 16% in FY2019.

adidas AG - Weaknesses
Weakness - Liquidity Position
Low liquidity is an indication of the decreasing ease in funding the company’s day to day operations, which also limits its
ability to capture growth opportunities in the market. The company’s current ratio was 0.5 at the end of FY2019 as compare
to 0.8% at the end of FY2018. Its current ratio was lower than that of its major competitors, NIKE, Inc (2.5) and Puma SE
(1.8). A current ratio less than the industry average indicates that the company could face difficulty in fulfilling its payout
obligations. Decrease in current ratio could be due to 28% increase in total current liabilities, which increased from
EUR6,834 million in FY2018 to EUR8,754 million in FY2019, over increase in accounts payable and accrued expenses.

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adidas AG - Opportunities
Opportunity - Positive Outlook for Global E-retail Market
The company stands to benefit from growing online retailing, which provides consumers the convenience of shopping from
home. With the increase in interactive methods and limitless content, the retail e-commerce is growing at a faster rate.
Economic stability in majority of the countries is also fueling the market. Further, changing lifestyles due to rising income
levels, rising internet penetration, user-friendly interface of web portals, enhanced discounts and offers, changing consumer
patterns and purchasing power are expected to be the major growth drivers for the market in the coming years. The
company took several initiatives to enhance its e-commerce operations. Its e-commerce portals offer diverse range of
products in various competitive prices which enhance the shopping experiences of its customers and also enable the
company to increase the portal visits of these sites. adidas merchandises these products through various e-commerce
portals including adidas.com and Reebok.com in approximately 40 countries worldwide. According to in-house research
report, the global e-retail sales was valued at US$773,992.6 million and is expected to grow at a CAGR of 15.2% during
2015-20 to reach a value of US$1,568,249.3 million by the end of 2020. In terms of geography, Asia-Pacific accounted for
35.1% of total sales in 2015, followed by the US (33.5%), Europe (27.2%), Middle East (0.5%) and Rest of the World
(3.7%).

Opportunity - Growing Footwear Market

The company stands to benefit from the growth in global footwear market. Adidas designs, develops, manufactures,
distributes, and markets footwear products for men, women and children. Increase in purchasing power of young middle
class people, and growth in popularity of online shopping augmented the global footwear market. According to in-house
research, the global footwear market is expected to reach a value of US$414 billion by 2022. Product category wise,
women’s footwear accounted for 53.2% of the total value of global footwear market, followed by men’s footwear with 27.6%
and children’s footwear with 19.1% in 2017. Geographically, Asia-Pacific accounted for 33% of the total value of global
footwear market, followed by Europe with 29.5%, the US with 25.5%, the Middle East with 1.4% and Rest of the World with
10.6%. In January 2020, the company announced to launch new fabrics made from recycled polyester and marine plastic
waste. In October 2019, the company launched a post-mastectomy bra for women. In November 2019, the company
launched the new-age UltraBOOST 20, an interstellar addition to the UltraBOOST line. In December 2019, the company
along with Beyonce announced to introduce the first adidas x IVY PARK collection.

Opportunity - Strategic Agreements

The company continues to view partnerships as a major part of its strategy to augment growth and expand business and
geographical reach. In April 2020, adidas and Beyonce entered into partnership for co-creation of exciting new products. In
March 2020, the company along with Google, and EA Sports entered into a partnership to introduce a new tracking device
powered by Jacquard technologies. In December 2019, the company partnered with PrimaLoft to launch apparel with
PrimaLoft's Ocean plastic insulation. In October 2019, adidas collaborated with HTC VIVE and The Wild to revamp design
and storytelling process with virtual reality.

Opportunity - Capital Investments

Adidas announced its plans to expand its business operations through strategic capital investments. In FY2019, the
company invested EUR711 million on various activities including expanding Reebok and adidas brands, strengthen retail
and e-commerce stores, investments on logistics infrastructure, IT systems and expansion of corporate facilities in
Portland, Herzogenaurach, and Shanghai. In FY2019, Adidas invested EUR711 million of which 47% on Controlled space,
13% on IT investments, 7% on administration activities, 6% on logistics and 26% on other activities. In FY2020, the
company announced its plans to unvest a capital expenditure of EUR800 million for various initiatives including adidas and
Reebok brand expansions, space expansion, opening of retail stores and also on IT investments.

adidas AG - Threats
Threat - Intense Competition
The company operates in a highly competitive sportswear and equipment market. The factors that determine the level of
competition within the industry include price, comfort, quality, product functionality, brand loyalty and awareness, and
marketing and advertising capabilities. The company’s major competitors include NIKE Inc, Puma SE, ASICS Corp,
Callaway Golf Company, Deckers Outdoor Corporation, Lululemon Athletica Inc, New Balance Athletic Shoe Inc, and Peak
Sports Products Co Ltd. Some of these competitors have higher operating histories, technical, marketing, distribution and
support resources; greater brand recognition and higher financial capability than the company, could restrict the creation of
innovative products and business expansion. In August 2019, Nike Inc (Nike) completed the acquisition of retail predictive
analytics firm, Celect to bolster direct-to-consumer strategy. In the same month, Nike entered into an agreement with
Footlocker.com to launch power stores in the US.

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Threat - Counterfeit Goods Market

The huge influx of counterfeit products could affect adidas business operations. The counterfeit merchandise that floods the
markets could reduce the company's sales and affect its profit margins. Customers could mistakenly purchase counterfeit
products bearing fake labels, containing low quality products, which affect consumer confidence and spoil the brand image
of the genuine company. According to the International Chamber of Commerce (ICC), counterfeiting and piracy are
estimated to cost G20 countries over US$125 billion every year. It is also estimated that approximately 2.5 million jobs
could be destroyed by counterfeiting and piracy. Being priced low, the imitated goods affect the company's financial
performance and brand image.

Threat - Foreign Exchange Risks

The company operates in many parts of the world and is exposed to fluctuations in foreign exchange rates. The company
reports financials in Euro and therefore its revenue is exposed to volatility of EUR against other functional currencies such
as the US dollar, Chinese yuan, Japanese yen, Great Britain pound, Russian ruble. The major elements exposed to
exchange rate risks include the company’s investments in overseas subsidiaries and affiliates and monetary assets and
liabilities arising from business transactions in foreign currencies. In FY2019, the company reported a gain of EUR98
million from foreign currency translation adjustments as compared to a loss of EUR48 million in FY2018. To minimize risks
from currency fluctuations, the company could involve in foreign exchange hedging by entering into foreign exchange
forward contracts. However, there could be no assurance that such hedging would limit the impact of movements in
exchange rates on the company’s results of operations.

NOTE: The above strategic analysis is based on in-house research and reflects the publishers opinion only

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