While Adidas AG reported another round of strong earnings in North America on Thursday, the German company's overall growth slowed more quickly than analysts had expected.
As such, Adidas, which houses its North American headquarters in Portland, watched its shares decline by more than 3 percent Thursday morning.
Adidas' Q3 sales grew half as quickly as in the last quarter. Still, sales increased 9 percent to 5.67 billion euros (12 percent currency neutral, $6.6 billion), slightly below the consensus expectation of 5.86 billion euros. And the company reports that, thanks to improved operations, net income rose by 35 percent. Its earnings per share rose by 33 percent, to 2.70 euros.
As U.S. retailers struggle, Adidas' North America revenue rose by 31 percent for the quarter, topping $1 billion. Direct-to-consumer sales were also a major contributor to growth: e-commerce sales, the fastest growing channel in all markets, were up 39 percent. The company added that it sold in 1,500 more branded retail locations over the past year.
"This was another really, really strong quarter," Adidas North America President Mark King said. "We feel like the investments we’ve made over the past couple of years are allowing us to have really solid, sustainable growth."
Those investments in the North American market appear not to be slowing: Adidas also announced that it will open an office in Los Angeles in early 2018, as part of its 2020 "Creating the New" business strategy.
The strategy identified six key cities throughout the world where Adidas would focus resources to drive sales: Los Angeles, New York, London, Paris, Shanghai and Tokyo. The downtown Los Angeles office will be home to sales, entertainment and influencer marketing and editorial and social teams.
"We really want to make the brand come alive using assets, events and athletes in that city," King said. "Opening an office downtown, and having a dedicated group to work with all of our assets and events that happen in Los Angeles, will allow us to really bring the Adidas brand to life."
Adidas is already about a year into implementing its key cities strategy in New York, where it opened its Brooklyn Design Farm in March.
King said this is all part of continuing to grow Adidas' presence in North America.
"Today, we’ve doubled the size of our business in market share over the last few years, (in the U.S.) we're at 9 percent market share," King said. "But we think that’s a relatively small number. There’s a lot of runway for us to continue to grow by continuing to bring out really great, exciting products."
As for products, the company reports that its Adidas Original business is still driving significant growth: it's up 22 percent in Q3, and modern franchises like the NMD (versus retro models like the Stan Smith) now make up half of the business.
This makes sense given that on Wednesday, NPD Group's Matt Powell reported that for the overall footwear and apparel industry in Q3, casual, style-focused "sportswear" sales grew in the mid-teens while the performance category continues to suffer.
When will brands figure out that they can't shove performance down the throat of today's consumer? Consumer is totally in charge. Brands are their servant now. Wakey, wakey
— Matt Powell (@NPDMattPowell) November 9, 2017
In its Q3 review, Adidas also made mention of the "U.S. college basketball allegation" in its list of weaknesses, saying that a thorough internal investigation is ongoing. This comes as former Adidas executive Jim Gatto was indicted Wednesday for his involvement in the NCAA scandal.
Clare Duffy covers footwear, apparel, banking, finance and general assignment news for the Portland Business Journal.
