News that Puma’s outgoing CEO Bjorn Gulden may succeed Kasper Rorsted as Adidas’ CEO was greeted favorably by Wall Street as several analysts were hopeful Gulden may be able to replicate Puma’s recent success at the struggling Adidas. His exit was seen as slightly negative for Puma.
Earlier Friday, Puma said Gulden would leave his position as Puma’s CEO at the end of 2022 and appointed Arne Freundt, Puma’s chief commercial officer since June 2021, as his successor, effective January 1, 2023. Manager Magazin first reported that Gulden was in talks with Adidas and Adidas later on Friday confirmed those discussions.
In August, Rorsted, who has been at the helm of Adidas since 2016, unexpectedly announced he would be leaving his position sometime in 2023 following the hire of his successor.
The planned departure comes after Adidas announced a string of disappointing financial results and guidance cuts, which were partly due to a slow recovery in China. More recently, Adidas flagged slowing consumer demand in Western markets since early September, a significant inventory build and a further deterioration of traffic trends in China. Most recently, a split with designer Kanye West (“Ye”) exacerbated the company’s financial challenges.
Shares of Adidas rose about 20 percent on Friday after news of the potential Gulden hiring given Puma’s strong turnaround since he joined Puma as CEO in July 2013.
Under his leadership, Puma’s annual sales have expanded at a CAGR (compound annual growth rate) of about 12 percent with the brand’s EBIT margin improving 610 basis points between 2013 and 2021. He has been credited with helping Puma restore the basketball category hat also helped support its casual lifestyle range while maintaining the brand’s credibility in performance running and global football (soccer). Partnerships with Rihanna and others have also driven buzz and supported women’s growth. Elevating wholesale distribution has also been a key focus.
Prior to joining Puma, Gulden had 20 years of experience in the athletic industry, including several senior management positions such as CEO of Pandora Jewelry, managing director of footwear retailer Deichmann, various positions at Helly Hansen, and prior to 2000 was SVP of apparel and accessories at Adidas.
Analysts expect the hiring to be highly likely given the disclosures although non-compete clauses (typically lasting six to 12 months) may delay Gulden’s arrival at Adidas. Some also noted that Gulden’s turnaround efforts at Puma took time to gain traction.
RBC Capital Markets’ Piral Dadhania sees the potential hiring of Gulden as a “positive” for Adidas. He wrote in a note, “Adidas desperately needs a new strategy, with renewed focus on execution, rebuild product offer (particularly in Lifestyle Footwear) and a fixed China business once and for all. We believe in Mr. Gulden’s ability to deliver on this, however, it is not likely to happen overnight.”
Dadhania, who has a “Sector Perform” rating on Adidas, also believes there’s “real risk” Adidas’ FY23 guidance will need to be significantly reduced below current consensus expectations, partly due to the termination of the Yeezy contract.
For Puma, he sees to pending CEO change as a “negative,” given Gulden’s material impact and contribution to Puma’s business over his tenure, but he kept his ”Outperform” rating on Puma. Dadhania wrote, “We do believe the Puma business momentum is strong, and see no reason why this would change in the near-mid-term delivering largely on the strategic plan created by Bjorn Gulden.”
At Cowen, John Kernan, who has a “Market Perform” rating on Adidas, reduced his estimates on Adidas significantly below Wall Street’s consensus targets and marginally raised his price target on the restructuring potential for the new CEO.
He said Rorsted is leaving a “complex and risk-filled situation” for his successor but felt the potential hiring of Gulden would be a win for stakeholders. Kernan wrote, “He would be tasked with defining a new strategy, culture and dealing with the wind-down of Yeezy business that Kasper Rorsted mistakenly expanded far too large and a China business that has lost €1B in annual profit since 2019. Adidas brand momentum (ex Yeezy) is deteriorating in our surveys. We are hopeful the company’s marketing will be more sport-oriented globally.”
At BOFA (Bank of America), David Roux raised his price objective on Adidas to €115 ($57) from €110 ($55) on the news while trimming Puma to €72 from €75 as the analyst believes Gulden’s leadership “deserves a premium.”
Roux wrote, “Bjørn Gulden has led Puma since July 2013 and has been instrumental in its successful brand turnaround following some key strategic decisions (e.g. the brand’s re-entry into basketball in 2018). Gulden is highly regarded for his operational capabilities, as well as a conservative and forthright approach to communicating with the market.”
He expects the second half of 2023 to be the earliest Gulden could outline a new strategy for Adidas.
“Gulden faces the significant task of kick-starting the brand while restructuring the business,” said Roux. Roux recently issued a note detailing steps Adidas needs to “regain market confidence,” including around product, communication, reviving China, and rebalancing inventory. Roux stated that Adidas’ “inferior profitability of its core business (on our estimates) was revealed post the cessation of Yeezy. As such, we think it needs to right-size its cost base meaningfully.”
On Puma, Roux sees Freundt as Gulden’s “understudy” and believes the company will likely seek a continuation of its successful product and marketing-led strategy, although losing Gulden’s leadership from an investment standpoint is a negative.
“Freundt faces the task of proving to the market that the successful turnaround strategy at Puma can be maintained,” said Roux. “His first yardstick may be his ability to navigate the tough industry backdrop over the near term (elevated inventories, USD headwinds). We think he may also need to come up with a new China strategy given what we believe are structural challenges for European sportswear brands.”
At Baird Equity Research, Jonathan Komp saw Gulden as potentially a “very strong hire” given his industry experience, including time at Adidas, and Puma’s strong track record over this tenure.
“We have been impressed with the brand’s repositioning in North America especially in newer areas such as performance basketball (has become relevant, especially with Lamelo Ball) and more recently running and outdoor, in addition to legacy strength in fashion/lifestyle,” wrote Komp in a note. “More specifically, we think Gulden potentially could help Adidas to refine its current brand/product positioning and go-to-market strategies on a more immediate basis while building on key progress made by the company under Kasper Rorsted in the areas of aligning the global infrastructure and focusing on direct/digital.”
Komp maintained his “Outperform” rating on Adidas.
At UBS, Zuzanna Pusz wrote that given that Gulden has been instrumental to Puma’s “impressive turnaround” in recent years, including driving sales and margin expansion, his departure, especially with no official transition period in place, could be taken “slightly negatively” by Puma investors. She wrote, “Nevertheless, we note that Arne Freundt has been long seen internally as Mr Gulden’s successor (per our channel checks), as such his appointment shouldn’t surprise investors familiar with the story, despite its unexpected timing. We believe that Mr. Freundt is well equipped to continue PUM’s success path, having been part of the turnaround under the direction of CEO Gulden from day one.”
For Adidas, Pusz said a potential Gulden hiring “could be seen as a positive” given his Puma success, particularly over the long term for Adidas. She wrote, “We note that his usual focus on brand investments means that ST (short term) there could be a risk to numbers, should he be confirmed to join ADS.”
Pusz has a “Neutral” rating on Adidas and a “Buy” rating on Puma.
At Credit Suisse, Simon Irwin viewed Gulden’s exit as a “significant loss” for Puma while noting the brand “remains in good shape and is trading considerably better than peers, with strong brand momentum in key categories (basketball, running, F1), enhancements to its D2C initiatives with a mobile app rolling out globally by FYE23, and better inventory management than peers having taken back stock from China as early as 1Q22.”
Irwin doesn’t expect Freundt will need to make a “major strategic change” given Puma’s momentum although DTC expansion and currently elevated inventories may top investor concerns.
For Adidas, Irwin believes a Gulden hiring would be “probably the best possible outcome, given his experience and track record.” His one concern would be digital, where Puma is significantly behind Nike and Adidas. He also said that with a non-compete clause possibly delaying his hiring and the time it takes to build a new executive team and develop ranges and initiatives, it may take until 2025 to deliver “the first year of significant change” at Adidas under Gulden’s leadership
Adam Cochrane, at Deutsche Bank Research, said the potential hire of Gulden has been discussed by a few Adidas investors given his success at Puma. However, he initially felt it was unlikely because Puma’s recent success has been based on re-establishing the brand at wholesale while Adidas has emphasized a DTC (direct-to-consumer) push. However, Cochrane said a refocus on wholesale may be “exactly what Adidas needs at this stage.”
He added that should Gulden become CEO, “it is good news for Adidas that a new CEO with a track record in the industry and all of the relevant contacts has been found and may be able to start more quickly than previously feared.”
Cochrane, who has a “Buy” rating on Adidas, likewise said it will still “take some time” before Gulden would be able to have an impact on Adidas’ underlying business should he be hired. He added, “Some of the issues facing the company will take time to fix, whoever is at the helm.”
Kepler Cheuvreux analyst Juergen Kolb said in a note, “We think Gulden’s CV [resume] is ideal to run a sporting goods company and we would give him credit that he has the communication skills and the expertise to pull together Adidas again to improve those areas where it needs to get better namely in story telling. China has been a problem region for both Puma and Adidas.But there is no easy fix and new ideas need time until they become fully visible”
Photo courtesy Reuters
