Adidas, a German sportswear giant, is expected to report excellent second-quarter sales and its highest profit margin in three years thanks to the popularity of its low-rise, multicoloured Samba and Gazelle trainers and worse sales at rival Nike.

Investor concerns about the sportswear giant lagging behind both more established competitors and up-and-coming ones were heightened when Nike unexpectedly reduced its annual sales projection at the end of June.

Nike’s stock dropped as much as 20% in response to the news, while Adidas’s shares, which typically follow the U.S. company’s movements, scarcely moved at all, indicating that investors may have seen Adidas’ vulnerability as a potential opportunity.

“Nike, in terms of product and message, is very much off its game and Adidas is having a bit of a moment,” said Simon Irwin, retail and sporting goods analyst at Tanyard Advisory.

Cedric Rossi, next-gen consumer analyst at Bryan Garnier, stated that Nike is less inventive than in the past and that competition has risen, giving shops a greater selection of brands to choose from.

“There is really a huge contrast between what’s going on at Nike and the rest of the industry,” he stated.

Nike said in late June that it will launch new trainers priced at $100 and lower globally in an effort to boost sales.

Adidas, on the other hand, has been promoting a trend for their shoes with three stripes, such as the Samba and Gazelle, by releasing limited editions and fresh colours to keep customers engaged.

According to Google Trends data, searches for “Adidas Samba” have increased significantly globally over the past 12 months, topping those for “Nike Air Force 1” last December and peaking at the start of April.

Based on LSEG statistics, analysts anticipate Adidas will report a 51.4% profit margin for the second quarter. After three years, that would be its highest point. Quarterly revenue is expected to reach 5.6 billion euros ($6.1 billion), up 4.5% from the same period last year.

Irwin stated, “It’s obvious that the market is expecting upgrades.” However, he cautioned against thinking that the “golden days of very high margins” will return any time soon due to increased competition and declining Chinese demand.

Adidas still has to be cautious since other companies are catching up, particularly in the running and outerwear industries.

According to RBC study released last month, emerging sportswear companies including Hoka, Lululemon, New Balance, and On Running had a worldwide market share of 35% in 2023, up from 20% over the 2013–2020 timeframe.

According to Irwin, Nike “fed into” the industry’s inevitable fragmentation by severing ties with some of its wholesale partners to concentrate on direct-to-consumer sales, so “opening the gates” for lesser firms.

This approach is in opposition to Adidas’ attempts, led by CEO Bjorn Gulden, to improve ties with distributors.

Before Nike’s investor day this autumn, a few Wall Street experts have suggested that the company may undergo a leadership change.

Analysts and investors predict that the European football tournament will also increase demand for sportswear in Europe.

According to Simon Jaeger, investment manager at Flossbach von Storch, which owns Adidas shares, “what Gulden brought back is the focus on sport.”

(Adapted from Reuters.com)