Adidas shares soared 9% on Wednesday after the German sportswear giant impressed shareholders with its 2020 profitability outlook.
The company’s Q4 2017 earnings report missed expectations slightly on Q4 revenue of 5.06 billion euros ($6.26 billion), but the big story is profit margin: Adidas Group, two years into a much-heralded five-year plan, raised its predicted profit margin to 11.5% by 2020. Meanwhile, rival Under Armour lost money in 2017.
Adidas is seeing particular growth in e-commerce sales (up 57% in 2017) and in two key regions: China and the U.S.
The brand’s comeback in America continues to be a win it can tout, leapfrogging Under Armour in U.S. apparel and gaining on Nike in U.S. footwear. (Last year, Adidas jumped over Nike-owned Jordan Brand to reclaim the No. 2 spot in sneakers.)
Adidas brand sales in North America were up 35% in 2017, driven by running shoes and Originals, the line that includes retro sneakers like the Superstar and Stan Smith.
So, how is Adidas winning in America?
US CEO Mark King says the group “invested heavily in North America, and it’s working.” It’s all been under new strategic framing that Adidas introduced in 2016: key cities; speed; and open source.
But it may be simpler than that: the brand is red-hot again in the States. Chalk that up to a strong product pipeline, or the right positioning with celebrity culture, or both. “W e’re really excited about the momentum of the brand, which we didn’t have a few years ago,” King says. “We have really great momentum right now.”
Adidas has taken a “Creators” angle with its sports marketing in the U.S., endorsing athletes like bearded Houston Rockets star James Harden, effusive Denver Broncos linebacker Von Miller, young Houston Astros slugger Carlos Correa, and electric WNBA star Candace Parker.
Adidas has also successfully avoided being hit as hard by the decline of basketball sneakers as rivals Nike and Under Armour have. Sales of performance basketball sneakers in the U.S. fell more than 20% in 2017. Those brands overemphasized basketball, while Adidas has focused on lifestyle running shoes that blend style and performance.
Call it “athleisure” or “casual sportswear,” but regardless, NPD Group retail analyst Matt Powell says the trend isn’t going away any time soon.
King cautions that Adidas hasn’t given up on basketball as a category, and predicts that the ugly sales trend in basketball sneakers will “flatten out” soon enough.
“Basketball is still really important to us,” he says. “We have great assets, whether it’s Damian Lillard, or Harden, or John Wall. We just need to have great product, and you’re going to see in the back half of 2018 that we’re going to get stronger with our basketball sneakers. I would also say: You don’t always have to follow the trend, as a brand. If you have new, compelling product, then regardless of the trend, you can grow in a category.”
Daniel Roberts is the sports business writer at Yahoo Finance. Follow him on Twitter at @readDanwrite.