Adidas released its Q3 2017 earnings on Thursday, reporting sales growth of 9% and profit growth of more than 33%. “We are exceptionally happy,” said global CEO Kasper Rorsted. Quarterly revenue of 5.67 billion euros was a miss compared to analyst expectations of 5.86 billion euros, which caused the stock to drop.
But the biggest story is the performance of the Adidas brand in the U.S.: It’s flying.
Adidas brand sales rose 31% in the U.S. in the third quarter, and 17% globally (tempered by a drop in Russia, where competitors Nike and Under Armour are also seeing declines due to store closures and bad sentiment there). The other big positives: Adidas brand grew 29% in China, and Adidas Group confirmed its full-year outlook for 2017, which it raised in July to sales growth of 17% to 19% and profit growth of 26% to 28%.
Adidas is doing so well that Salesforce CEO Marc Benioff, at the company’s Dreamforce conference this week, gave it props: “They own sports today. Kanye is there, and Pharrell is there, and the products are changing constantly… I think they’re winning versus everybody.”
“We don’t apologize” for Originals
For the past two years, the story with Adidas has been the growth of its Originals line, which houses retro sneakers like the Superstar and Stan Smith.
Originals continue to perform well, “and that’s a great thing for us and we don’t apologize for that portion of our business being strong,” says U.S. CEO Mark King. (Why would they apologize, you might wonder? Because Adidas, in the past, has often been criticized for being too focused on fashion, over performance; currently, that formula is working wonders.)
But there are other factors, King says, that had a bigger impact on this quarter: running and e-commerce.
“Honestly, running is the biggest opportunity for us,” says King. “Not all performance running, but lifestyle running.” (“Performance,” in the industry, signifies sneakers or apparel specifically worn for sports, while “lifestyle” connotes sneakers or apparel that are also worn as everyday fashion.) “We have tremendous momentum both in the mall, sporting goods stores, and running specialty stores. Ultraboost, Pureboost, AlphaBounce. Running for us is really starting to be a significant contributor to growth.”
“Our products have gotten better and better”
Then there’s e-commerce, where revenue grew 39% in the quarter. As brick-and-mortar stores struggle, e-commerce has been a hit for Adidas since Adidas-lovers can’t always find the products in stores anymore.
“Our brand is getting hotter and hotter,” King says, “and over the last few years our products have gotten better and better, in more and more categories. When consumers are choosing, at least for now, they are choosing our products at a higher rate than they were before. And it’s hard to find all of our products at retail because we’re behind the curve right now in terms of having branded space.” Thus: Shoppers head online.
Adidas is working on that ‘branded space’ issue, King says: it’s actively opening up more Adidas-devoted areas in the stores of existing customers like Dick’s, Foot Locker, Finish Line, and Kohl’s. Still, King says, “We’re not where we want to be in terms of the display area. There will continue to be challenges in brick-and-mortar because there are just too many stores in the U.S. So that will level off. But retail is not going to go away, retail will make its way through this, and the strong will survive.”
“We want to find out where our processes broke down”
Amidst all the good financial news about Adidas, there has been a dark shadow: a bribery scandal involving an Adidas executive, Louisville University (and others), and now an FBI probe. The timing was damaging for Adidas, bringing bad headlines at a time when the brand is flying high.
Adidas basketball executive Jim Gatto was among eight people indicted this week on conspiracy charges.
Yahoo Finance asked King if the news is hurting Adidas’s relationships with colleges and universities —deals that Adidas actively seeks to sign more of.
“I don’t think it’s affected things at this point,” he says. “We’ve had conversations with everyone, we’ve explained that we’re cooperating with authorities, doing our own internal investigations. We want to find out where our processes broke down and fix those immediately.”
It will take a while to see if the bribery probe damages Adidas’s relationships with sponsored colleges and universities.
For now, the financial story is 31% brand growth in America.
Daniel Roberts is the sports business writer at Yahoo Finance. Follow him on Twitter at @readDanwrite.