By Ellen Emmerentze Jervell
FRANKFURT -- Kasper Rorsted, who takes over as chief executive
of Adidas AG on Saturday, has a track record of cutting costs and
boosting margins. Now investors want to see him do more.
Mr. Rorsted comes to the sporting-goods maker after eight years
running German consumer-products giant Henkel AG, where he led a
significant turnaround. The 54-year-old Dane hit all of his
financial targets amid the global recession, and Henkel's share
price tripled during his tenure.
When Adidas, also based in Germany, said in January that he
would succeed 15-year CEO Herbert Hainer, its share price jumped
6.3%.
Adidas Chairman Igor Landau called Mr. Rorsted "the perfect
candidate" for the job, particularly in light of his achievements
at Henkel.
At Adidas, Mr. Rorsted doesn't need to pull off another
turnaround because Mr. Hainer recently guided the company out of a
multiyear slump. A big challenge for Mr. Rorsted is the fact that
Adidas is doing well.
The company has raised its financial outlook four times this
year. It recently surpassed rival Under Armour Inc. in quarterly
North American sales, and its share price more than doubled over
the past 12 months. Mr. Hainer said recently he was "convinced"
double-digit sales growth in the U.S. would continue.
"It's not the greatest scenario for Rorsted," said John Guy, an
equity analyst at MainFirst Bank, of the strong base against which
Mr. Rorsted's performance will be measured. "I think he will be
sensible not to go out with anything too bullish to start
with."
A member of Adidas's supervisory board said "the bar is very
high" for Mr. Rorsted, given the recent surge in Adidas's share
price and the expectations it reflected.
Despite Adidas's renewed vigor, investors see upside potential,
particularly on profit. The company's operating-margin target of
7.5% this year is roughly half of that of larger U.S. rival Nike
Inc.
Ingo Speich, a fund manager at German fund company Union
Investment, which holds Adidas shares, said he would like to see
Mr. Rorsted lift profitability. "We expect him to deliver a
double-digit margin within a few years," Mr. Speich said.
Mr. Hainer, Adidas's departing CEO, said Mr. Rorsted has "tons
of opportunities" to save money.
Analysts say he could look at Adidas's manufacturing and
distribution channels and at costs related to its lavish
headquarters campus in rural Bavaria. Adidas also could shed some
smaller brands, they said.
Tim Albrecht, a fund manager for German equities at Adidas
shareholder Deutsche Asset Management, said the sporting-goods
industry is already "highly consolidated and cost-efficient." He
said Mr. Rorsted should strive to improve sales at Adidas's
high-performance sports segment in the U.S. rather than focus on
cuts.
Strong sales in the U.S. -- the world's biggest and most
influential sporting-goods market -- could ensure continued growth
for Adidas. After several down years, Adidas is surging in North
America, helped by improved sneaker sales, its design collaboration
with rapper Kanye West and increasing traction in social-media
outlets such as Instagram.
Still, Adidas generates only about one dollar in North American
sport-footwear and activewear sales for every seven dollars in Nike
sales there, according to NPD's retail tracking service.
Matt Powell, an analyst with market researchers NPD Group, said
Adidas's concentration on the "most important sneaker market in the
world" has been the main driver behind the company's recent global
turnaround. Mr. Rorsted's task is now to prove the trend is
sustainable, he said.
Mr. Rorsted, who spent many summers in the U.S. as a child,
studied there and visited frequently as CEO of Henkel, said he has
a strong understanding of the U.S. market.
"The U.S. mentality, which is a bit more competitive, was set in
me at an early age," he said in an interview earlier this year.
One area where he will need to compete as Adidas CEO is for
sports sponsorships, which are a big part of the company's
marketing strategy. Sporting-goods companies have in recent years
shifted focus from sponsoring teams to rich single-player deals.
Meanwhile price tags for deals with the few most attractive teams
have soared.
Adidas two years ago snatched the sponsorship of soccer club
Manchester United from Nike, offering the team GBP75 million ($97
million) a season. This was roughly three times what Nike had paid.
Earlier this year, Nike sealed a deal with soccer club FC Barcelona
for an estimated EUR150 million to EUR155 million ($168 million to
$174 million) per season.
Another big cost awaiting Mr. Rorsted is refreshing Adidas's
retail network.
"On the marketing and sales side, Adidas needs to materially
invest in an aged and, in some instances, poorly located store
portfolio," said Mr. Guy, the MainFirst analyst, adding that some
Adidas stores in the U.S. look as if they are "an homage" to the
1990s. Adidas declined to comment.
"Mr. Rorsted needs to do it all," Mr. Guy said. "Save money,
sustain strong top-line growth and provide an incremental foothold
in richer stores to improve the margin."
--Eyk Henning contributed to this article.
Write to Ellen Emmerentze Jervell at ellen.jervell@wsj.com
(END) Dow Jones Newswires
September 29, 2016 05:44 ET (09:44 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.