The high margin ecommerce business provided Adidas a shot in the arm in its battle with Nike, and a higher than expected first quarter profit. Q1 2019 net profit at the sportsgoods maker rose 17 percent to a record high. This rise in net profit came despite a slowdown in sales growth due to supply chain issues in North America and a decline in sales in Europe.
After adjusting for currency variations, first-quarter sales at Adidas rose 4 percent to $6.57 billion. Attributable net profit for the first quarter was $704 million.
Adidas CEO Kasper Rorsted’s strategy to improve profitability by prioritising ecommerce, where margins are higher than wholesale selling, helped the company gain an advantage over Nike. In addition, the decision to focus on gaining market share in North America and Asia also helped the company.
Rorsted told Reuters that he expects sales to pick up further in the second half of the year. Adidas has successfully doubled market share in North America by taking business from arch rival Nike.
Adidas recorded a higher operating margin than Nike – operating margin rose 1.4 percentage points to 14.9 percent versus 13.5 percent for Nike in the December to February period.
He also said that the decline in sales in Europe is due to ‘over-reliance’ on its fashion shoes business. Rorsted added that Adidas future strategy for Europe includes a turnaround of the single business domination scenario.
Adidas had earlier warned that supply chain issues would hit sales in North America, despite its growing advantage over Nike.