Adidas Summary
Core Content
Adidas is the second-largest global manufacturer and retailer of sporting goods, with key brands including adidas, Reebok, and Taylor-made Adidas Golf. The company has a strong presence in Western Europe (29%), North America (23%), and Asia Pacific (25%), with China and Russia being particularly important markets. The group's FY12 sales reached EUR 14.9bn, with 74% of sales attributed to the adidas brand, 15% to Reebok, and 11% to other brands.
Key Financials
- Share Price (as of 3 December 2013): €87.67
- Target Price (TP): €85 (increased from €77)
- Potential Downside to TP: 4%
- Market Cap: €18,403m
- Enterprise Value: €17,955m
- Net Cash: €447.9m
- Number of Shares (m): 209.2
- Free Float (%): 100.0
- Average Daily Volume (k): 4
- Dividend Yield (%): 1.9
- Forward PE (12m): 18x
- Sector PE: 18.9
- Price/Book: 3.5
- 12-Month High/Low (€): 90.00 / 64.82
Financial Forecast
| Year |
Revenue (€m) |
EBIT (€m) |
PBT (€m) |
Net Income (€m) |
Adjusted EPS (€) |
PEREV/EBITDA (x) |
| 2011A |
13,322.0 |
953.0 |
869.0 |
790 |
3.77 |
17.0 |
| 2012A |
14,883.0 |
1,184.5 |
1,116.4 |
842 |
4.02 |
19.9 |
| 2013E |
14,445.7 |
1,227.9 |
1,177.9 |
1,019 |
4.86 |
18.1 |
| 2015E |
16,571.8 |
1,734.0 |
1,699.0 |
1,215 |
5.80 |
15.2 |
Key Financial Metrics
| Metric |
FY12 |
FY13E |
FY14E |
FY15E |
| Gross Margin (%) |
47.7% |
49.2% |
49.9% |
50.7% |
| EBITDA Margin (%) |
9.8% |
11.4% |
12.4% |
13.4% |
| EBIT Margin (pre EI) (%) |
8.0% |
8.5% |
9.5% |
10.5% |
| Net Profit Margin (%) |
5.3% |
5.8% |
6.5% |
7.3% |
| Tax Rate (%) |
29.2% |
28.5% |
28.5% |
28.5% |
| FCF (€m) |
529 |
496 |
585 |
895 |
| FCF/Share (€) |
2.53 |
2.37 |
2.80 |
4.28 |
| BV/share (€) |
25.29 |
27.95 |
31.32 |
35.28 |
Performance and Growth
FY14 Guidance
- Sales Growth: High single-digit currency-neutral growth
- Operating Margin: Expected to increase by around 100bps
- Route 2015 Targets: Reconfirmed at EUR 17bn in sales and 11% operating margin
Challenges
- Margin Targets: Seen as challenging due to rising labor costs, continued aggressive investments, and limited FX tailwinds
- Valuation: Current valuation (18x forward PE) is considered stretched
Key Growth Areas
- Boost Technology: Expected to expand from 1.5m pairs in 2013 to 10m in 2014 and 15m in 2015. Sales could reach EUR 900m+ by FY15
- Football: Targeting EUR 2bn in FY14, up from EUR 1.72bn in FY13, with growth expected due to the 2014 World Cup
- Adidas Originals: Growing at a 20% CAGR since 2010, with a strong brand ambassador lineup and strategic collaborations
- NEO: Aims to surpass EUR 1bn in sales, with plans to expand its store network to over 2,000 in China and Europe by 2015
China Strategy
- Market Leadership: Ambition to reclaim market leadership, with a sales CAGR of +15% since FY10
- Store Expansion: Over 7,600 stores by end of 2013, with plans to open 500 new stores annually, mostly in lower-tier cities
- Growth Drivers: Focus on segmentation, franchise model, and brand positioning
Reebok Strategy
- Fitness Focus: Continued emphasis on fitness, with 2015 targets of EUR 2bn in sales and gross margin over 40%
- Product Innovation: Launch of the nano shoe for CrossFit, Z series for running and training, and new retail formats like FitHub
- Partnerships: Growing presence in CrossFit, Spartan Race, and Les Mills
Summary of Key Messages
- China: Ambitious to regain market leadership through store expansion and brand positioning
- Boost: A key growth driver with plans to expand across multiple sports categories
- Football: Leveraging the 2014 World Cup to boost sales and brand visibility
- Originals & NEO: Strong growth in streetwear and lifestyle segments, with continued investment and expansion
- Reebok: Focused on fitness with product and retail innovations, aiming to improve margins
Performance Overview
| Period |
Absolute (%) |
Relative (%) |
| 1M |
+4.8 |
+7.8 |
| 3M |
+6.8 |
+6.0 |
| 12M |
+35.2 |
+16.6 |
Valuation Metrics
| Metric |
FY12 |
FY13E |
FY14E |
FY15E |
| Net Debt/EBITDA |
-0.3x |
-0.5x |
-0.5x |
-0.7x |
| Net Interest Cover/EBITDA |
21.3x |
32.9x |
37.1x |
63.3x |
Conclusion
Adidas remains a strong player in the global sporting goods market, with clear growth strategies in key areas such as Boost, football, and the expanding streetwear segment. While the company is optimistic about its future performance and has reconfirmed its Route 2015 targets, analysts remain cautious due to the challenges in achieving margin goals and the potential for limited FX benefits in FY14. The stock is currently rated as HOLD, with a target price of €85 and a forecasted 12-month return of -3.9%.