Adidas Vowing to Outrun Nike in U.S. With Bouncier Shoes
Comment of the Day

March 12 2013

Commentary by Eoin Treacy

Adidas Vowing to Outrun Nike in U.S. With Bouncier Shoes

This article by Matt Townsend and Julie Cruz for Bloomberg may be of interest to subscribers. Here is a section
Running is worth almost twice as much as soccer globally, driven by hardcore marathoners and sprinters as well as newbies entering their first Turkey Trot and fashionistas buying Nike Frees in neon for everyday wear. That could leave running as Adidas' best chance to meet its goal of lifting revenue 14 percent, to 17 billion euros, in the three years to 2015.

Sales of running footwear in the U.S., which accounts for 40 percent of the global total, grew 8 percent last year, versus 0.5 percent for soccer shoes in the country, according to NPD Group Inc. Globally, consumers spent $15 billion on running shoes in 2011, up 13 percent, NPD reports.

Adidas doesn't disclose revenue by sport, but given its scant market share in the U.S. there's plenty of room to grow. In 2013, the company's running business will expand more than 10 percent for the third straight year, Hainer said.

“We believe Boost is a game-changing product,” Hainer said March 7, at the company's annual results press conference. “We have the biggest potential in running, and that's where we are focusing our efforts.”

Eoin Treacy's view Nike has been on our list of Autonomies since we began to focus on the global leadership theme more than three years ago. It remains the largest company in the sportswear sector, with a dominant brand, an indicated yield of 1.54% and solid record of dividend increases. The share currently has an indicated yield of 1.54%. It pulled back sharply in June, testing medium-term uptrend consistency, but found support near $42 and has since rallied back to test its peak near $55. A sustained move above that area would confirm a return to medium-term demand dominance.

Adidas as the number 2 sportswear brand globally has a similar indicated yield to Nike but not the same reliability of dividend increases. The share has found support in the region of the 200-day MA on successive occasions since 2009 and bounced impressively three weeks ago to post new all-time highs. Considering the consistency of the move, it would be best bought following one of its periodic reversions to the mean, currently near €66.

While we have focused on pointing out global leaders over the last few years, there are also a substantial number of additional companies, particularly in Europe, with Autonomy-like characteristics. I thought it might be of interest to subscribers to highlight some of those we have not reviewed in some time. As a starting point, I performed a search on Bloomberg for European companies with a market cap of greater than $2billion, that generate more than 40% of their revenue from outside Europe. Here is a pdf of the 73 companies that fit these criteria.

The grocery sector in particular caught my attention. Ahold (3.52%) is listed in the Netherlands and has a US listed ADR. The company now generates more revenue from the USA than Europe. The share has been ranging mostly below €11 since 2007 and broke successfully away from that area yesterday to post new all time highs.

Casino Guichard Perrachon (3.76%) is listed in France. Its Latin American businesses are its fastest growing and are now of a comparable size to its domestic revenues. The share is testing the upper side of its 11-year base

Delhaize's (4.3%) US business dominates its revenue while its emerging markets (Romania, Serbia, and Indonesia) revenues rival that of its Belgian business. The share more than halved before finding support above €25 from mid-2012. It rallied back above the 200-day MA by January where it consolidated and broke upwards last week. A sustained move below the MA, currently near €34, would be required to question medium-term scope for additional higher to lateral ranging.

While not on the list because they are more dependent on Europe for revenues both Carrefour and Tesco are extending breakouts from yearlong bases.

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