UPDATE: ADIDAS

NUMBERS IN-LINE.. STOCK OVERPRICED

Numbers were in line, but the stock is still expensive vs comps.

Adidas has had a spectacular rally based on the fact it was trading on trough margins that could certainly be improved, and that the multiple discount to Nike on that basis wasn’t appropriate.

However that gap has now narrowed and Adidas op margins are still at 6.4% vs NIKE’s 14.05%. We do not feel this is justified.

If margins were that easy to improve, it would have been done by now.

ADS assets: TaylorMade Golf and Reebok have been dragging down the overall performance of the company. TaylorMade Golf declined by double digit % and Reebok’s sales grew at very modest rate of 5%.

Marketing spend has been on the rise but there is no margin improvement. This is typified by Yeezy co-operation. Kanye doesn’t come cheap and we don’t see the much upside from the collaboration.

We stay SHORT as ADS overvalued and the general macro background deteriorates. Don’t believe the hype!!

Currently -2%.

 

ADIDAS: SHORT
ALL TIME HIGHS ON CEO EUPHORIA

Wednesday • 20 January 2016 • 15:13

This has been a long for us through the Secret PM since October 22, 2014 on the basis of huge margin expansion. Although margin expansion hasn’t played out the trade has. +57.5% Secret PM Adidas.

We now feel it is a trading SELL.

The stock is back to the highs on CEO Rorstead hire. Certainly good news over the alternative internal hire given his successful margin based background at Henkel. But is that enough?

Adidas has rallied 40% since mid September based on the fact it is trading on trough margins that could certainly be improved, and that the multiple discount to Nike on that basis wasn’t appropriate.

In the meantime Nike is 15% from the highs and both stocks trade on similar multiples. We know that the end of 2015 has gone well for Adidas, but looking into 2016 we are still waiting to hear exactly how they are going to protect the EBIT margin (guided flat YoY) given the gross margin hit from things like FX (which are getting worse every day).

We have seen Euphoria like this from good CEO appointments from stocks like VOLVO. Unfortunately the real world doesn’t wait, and Rorstead is not starting until October.

If margins were that easy to improve, it would have been done by now. Clearly there is a big short that needs to cover, but the catalyst is out there now.

We believe you will see some profit taking in this market for a stock at all time highs. TRADING SELL looking for 80 EUR.