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Sangara Narayanan
Sangara Narayanan
Articles (543) 

Under Armour, Nike Under Attack From Germany-Based Adidas

Company's success hammers Under Armour stock

November 14, 2017 | About:

Adidas (XTER:ADS), the Germany-based sports footwear and apparel firm, continued its resurgence in North America as the company reported third quarter revenue growth of 12%. Adidas continuing its double-digit expansion streak in the crucial North American market means its main rivals Nike (NYSE:NKE) and Under Armour (NYSE:UAA)(NYSE:UA) will likely continue to struggle in the region.

During the third quarter Adidas’ revenues increased 28% in Greater China and 23% in North America. Revenues grew in all regions except for Russia, allowing the company to walk way with yet another double-digit net revenue growth quarter. Operating margin increased by 2.7% during the quarter compared to last year as better pricing and product mix positively impacted revenues, and more than offset higher input costs as well as forex headwinds.

Adidas’ strong growth has dealt a huge blow to the fortunes of Nike and Under Armour as both companies derive the bulk of their sales from North America. Under Armour’s sales declined by 5% during the recent quarter as revenues from North America declined by 12%. Nike was able to report flat growth during the most recent quarter, but that was mainly due to strong performance in International markets, which was more than enough to pull the company out of trouble. But revenues for Nike declined by 3% in the North American market.

Clearly Adidas reporting a 23% growth in North America while Nike lost 3% and Under Armour lost 12% goes to show that the German juggernaut is not only enjoying robust growth in the region, but also taking market share away from both these companies. Both Under Armour and Nike have announced restructuring plans and are re-strategizing to get their sales numbers back on track, but the results are yet to show up in any form.

Adidas’ across-the-board revenue growth during the third quarter of the current fiscal will not only allow the company’s stock price to keep moving up but will also put Nike’s and Under Armour's stock prices under intense pressure.

Nike’s stock price has gone up by nearly 11% in the last year while Under Armour lost more than half of its value during the period. One major reason for this is that Under Armour makes more than one-third of its revenues from North America while, for Nike, International markets account for nearly 55% of their revenue.

With Under Armour more dependent than Nike on North America for its growth, the declining market share in the region has taken a toll on the company’s stock price. And, unfortunately, looking at Adidas’ current performance, things are not going to change for quite some time.

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Data by GuruFocus.com

Under Armour stock has been beaten so badly that the odds of going lower from here look slim, but the stock price may end up languishing at the current levels until Under Armour can arrest its sales decline in the U.S.

Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.

About the author:

Sangara Narayanan
Sangara Narayanan holds an MBA from Kent State University, Ohio, and has worked on the floor as a trader in New York. You know where. He is passionate about capital markets and specializes in business analysis, stock valuations and making chicken curry

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