Things look bad for sneaker and athletic wear designer, Adidas (ADS.DE), which recently released a warning on 2015 growth and is trimming its gross margin targets for next year.
Yet, despite the fact that Adidas is struggling to keep pace with Nike (NKE), 2014 third-quarter results were broadly in line on a global scale. Adidas is holding its ground in Europe and, after releasing the warning, shares still opened nearly 5% higher.
Analysts are also focused on Adidas’ “inventory management” – how well the company is getting its surplus stock down. If it can cut its surplus, analysts should reward the lagging shoe company.
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However, the widening margin gap between Adidas and Nike remains the sticking point right now. According to Barclays, management will soon face heavy pressure to alter its strategy and narrow the margin gap.
It looks like Herbert Hainer, CEO of Adidas, has his work cut out for him.
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Looking ahead, Adidas could always opt to sell Reebok (which it acquired in 2006). In fact, according to reports, Middle East investors are waiting in the wings with a $2-billion bid to buy the division.
That’s a promising outlook… but does it mean Adidas is investable right now?
At first glance, Nike is the much stronger competitor, with its stock price hovering around $95. However, its dividend yield is nothing to brag about. Meanwhile, though Adidas is lagging behind in terms of stock price, its yield is twice that of Nike’s, at 2.1% versus just 1.01%.
Without a doubt, management has some decisions to make, and hopefully those choices will close the margin gap between the two rivals.
Income Research Team