Adidas stock moves sideways or declines for the foreseeable future

To the company’s credit, Adidas (OTCMKTS:ADDYY) managed to convince investors that its disappointing outlook for 2019 was not as bad as it initially seemed, reversing the slump in Adidas stock in the middle of last week.

Source: Shutterstock

Still, the sportswear and footwear maker is fighting an uphill battle, including against rivals like Nike (NYSE:NKE) and under protection (NYSE:UAANYSE:AU), which investors may want to avoid until there is more certainty in his story. His plans may or may not go as well as hoped, or take shape as soon as hoped.

Never mind that ADDYY stock continues to dance with the transformation of the 2018 uptrend into a downtrend.

Look forward

On Wednesday, German company Adidas released its fourth quarter and full year results. Currency-neutral revenue grew 8% in 2018, increasing margins by 110 basis points to 10.8%. Operating profit increased by 20%.

Investors, however, were less than thrilled with what the company said was coming.

For 2019, Adidas forecast revenue growth of between 5% and 8%, held back (among other things) by supply chain issues.

The first half of the current year will see even slower growth before accelerating as the company reconfigures its capacity to meet strong demand in North America, where Adidas has doubled the size of its business in only three years.

Adidas CEO Kasper Rorsted put it this way:

“Right now, there’s no way to mitigate it. [the impact of supply chain problems]but if you look at the overall outlook, we’re still looking at 10-14% net profit growth, which is very strong, (and) bringing the margin to 11.5 (%) in 2019, which was the target initial for 2020…so we are about a year ahead of our 2020 plan and targets.”

Doubts remain over Adidas stock

However, not all analysts are convinced that the company will be able to break out of its trend of slowing growth.

Wedbush analyst Christopher Svezia noted after the release of Adidas’ 2019 outlook:

“Adidas faces aggressive competition from brands large and small, including Nike, which expands the market [and] take shares in the national territory of the company. Moreover, the positive reception of new merchandise is also not a given, especially in the face of intense competition from Nike, Puma, Champion and many others.

Adidas CEO Kasper Rorsted even conceded: “There is no doubt that the biggest competitor [Nike] came back,” on the conference call, acknowledging that Nike’s 8.5% improvement in North American sales last quarter was a hint that the iconic Nike had recouped some of its past mojo.

Worse perhaps, European sales fell 6% last quarter, while Nike saw 8% growth in Europe, the Middle East and Africa. Adidas does around a third of its business in Europe.

Whatever Adidas does, it needs to do more and do it faster.

Adidas Stock to Drive the Rhetoric

The data and outlook paint a mixed picture for current and potential owners of Adidas shares. This is a scenario, however, where titles can be driven more by the action of the title than the title is driven by the titles.

And, ADDYY stock has quietly exited an uptrend and is playing with the prospect of a significant pullback.

For twelve months, the Adidas action has made no clear progress. During this period, however, the stock recorded its first low and highest since 2014, officially ending a rally that coincided with the company’s North American rival. The stock’s slowdown anticipates the ingrained headwind as it nears its peak potential in North America and falling sales in Europe.

The waning pace of progress may also reflect market perception that Adidas is losing an edge over Nike.

Cowen chief executive John Kernan suggested the innovation could restore a more Nike-like valuation premium to Adidas shares. Kernan even thinks it could happen.

“We think (adidas head of global brands) Eric Liedtke and his team are ready to step up innovation because Prophere, Deerupt, Solar Boost, POD and Pure Boost look promotional and less competitive to us,” he said. he declares.

If ADDYY shares eventually bottom out, it will be the market’s way of saying it thinks Adidas is continuing to lose ground to its rivals. A breakdown could make the narrative decidedly bearish.

In other words, pay as much attention to the chart as to the titles themselves. The company raises more questions than it answers, and its relaunch efforts may or may not get all the traction they need.

As of this writing, James Brumley does not hold a position in any of the aforementioned titles. You can find out more about James on his site, jamesbrumley.com, or follow him on Twitterto @jbrumley.

James T. Quintero