Cowen lowered its estimates on Adidas for 2018 due to its belief that Nike’s product cycle is improving, heightened promotions are being seen in North America on the Adidas brand, and a possible moderation in Europe.
The investment firm’s estimate for fiscal 2018 was reduced to $7.75 from $8.10 previously and compared to consensus estimate of $7.96. The consensus estimate for the current year is €6.64 with Cowen’s estimate for this year at $6.77.
Cowen’s price target was trimmed to $195 from $210. Cowen is also reducing its FY18E revenue estimate to up 6 percent reported growth (12 percent constant currency) from up 7 percent (13 percent constant currency) prior and versus consensus of up 9.8 percent.
In a note to clients, John Kernan, the lead analyst in the sector at Cowen, said promotions and potential supply chain issues in North America “are concerning.”
He noted that footlocker.com ran a 40-percent-off select Adidas styles on December 1, including “relatively new” models of EQT Support, NMD R2, Alphabounce HPC Aramis, as well as less-but-sizeable discounts on NMD XR1, Tubular Shadow Knit and NMD R2 Primeknit. The analyst wrote, “All of these shoes are being sold on adidas.com at full-price or a higher discounted price, which is a concern because in the past 1.5+ years we have not seen FL discount new Adidas offerings.”
Of the top 100 best sellers on FL.com, Adidas has 25 shoes featured, 20 of which (80 percent) are currently on sale at an average discount of 31 percent. By comparison Nike has 48 SKU’s with 15 on sale (31 percent) at an average discount of 18 percent and Jordan has 22 SKUs, of which 16 (73 percent) are on sale at an average discount of 23 percent. Kernan added, “Our contacts also have suggested that Adidas supply chain and distribution centers in N. America are backed up and slow to flow newer product into channels.”
Cowen also noted that while the Adidas brand has seen significant growth recently in its fashion driven lifestyle business, Adidas market share gains in the U.S. “have not been matched by gains in consumer perception in certain categories, including running, casual sneaker preference and athletic apparel.”
Based on updated trailing three-month average data from its Cowen Consumer Tracker Survey, brand preference for Adidas, for instance, was flattish in running and casual sneakers while the brand lost ground in footwear with women 18 to 34. The Adidas brand also saw a reduction in brand preference in athletic apparel.
Cowen now expects growth of North America of 18 percent in 2018, down from a prior target of 22 percent. Kernan noted that Adidas the 18 percent will be coming on top for two years up 30 percent-plus growth.
The possible weakening in Europe was traced to Foot Locker’s comments on its third-quarter conference call. The retailer noted that Stan Smith and Superstars were seeing “slow sell-through” at Foot Locker Europe and slowing sales of some other Adidas styles contributed to Foot Locker Europe’s low-double-digit same-store decline in the quarter. Adidas makes up a greater portion of the mix at Foot Locker’s Europe stores than in the U.S.
Other concerns on Adidas mentioned by Cowen included the high level of promotions across athletic retail to clear inventory surplus and currency fluctuations.
Photo courtesy Adidas