Adidas share price down, sees strong growth ahead

Germanys Adidas AG pledged to significantly boost its profits in the years to 2020 under Chief Executive Herbert Hainers new turnaround strategy.

On Thursday, the worlds second-largest sportswear maker, lagging behind Nike, targeted a 15% growth in net income in each of the next five years as the company breathes life into its products.

Adidas said it would speed-up production in line with its new practice at its teen-oriented NEO brand, which pumps up new products into the companys store in 45 days versus the industry average of 12 to 18 months. Adidas also said it would boost in-season production.

The company would focus on six cities, including Los Angeles, New York, London, Paris, Shanghai and Tokyo, and heavily invest in the development of those markets in hopes to drive future growth. Adidas also aims to generate around 60% of its revenue through sales in its own stores, compared to around half in the past year.

Additionally, Adidas said it has targeted €2 billion in sales by 2020 from its e-commerce business, which contributed €422 million to the overall revenue in 2014.

With those changes the company estimated a revenue growth of a “high-single-digit” number, on a constant currency basis, in each of the next five years. The targeted growth implies a 2020 revenue of at least €21 billion versus €14.8 billion in 2014.

In 2010 the company said it was targeting a revenue growth of 45% to €17 billion over the next five years. However, last year Adidas backed down from that goal.

The move reflects Mr. Hainers latest efforts to spur growth at the company which saw its shares drop 40% following two profit warnings last year. The companys investors are not pleased with the performance of Mr. Hainer and have asked for his replacement. Adidas announced last month that it was looking for a successor.

However, Mr. Hainer have said that his departure is not imminent. He has been at the helm since 2001 and was constantly credited for the companys more than double digit revenue increases until 2014.

“Going forward, speed will be a key competitive advantage for us as we transform the adidas Group into the first true fast sports company,” said Mr. Hainer.

Adidas lost 1.03% on Wednesday and closed at €70.43 in Frankfurt. On Thursday the stock dropped 1.08% to €69.67 at 12:40 GMT, marking a one-year decrease of 10.89%. The company is valued at €14.89 billion.

According to the Financial Times, the 32 analysts offering 12-month price targets for Adidas have a median target of €69.50, with a high estimate of €80.00 and a low estimate of €49.40. The median estimate represents a 1.32% decrease from the last closing price.