UBS says Adidas outperformance in China continues

UBS reports Adidas continues to outperform in China's athletic wear market, expecting low- to mid-double-digit growth in 2025 and forecasting 14% currency-adjusted sales growth in Greater China, despite overall industry growth rates remaining sluggish. Adidas has strategically reduced promotional activity, supporting gross margins, while competitors like Nike have increased promotions. Industrywide, cautious consumer spending and a shift to online purchases present challenges, but Adidas' relative strength persists amid Nike's inventory and innovation struggles.

Analysis

Adidas is demonstrating continued outperformance in China's challenging athletic wear market, building on its strong momentum from the first quarter, according to a UBS note from May 30. While recent performance was slightly below expectations due to delays in new product arrivals, the brand's underlying strength appears intact. Notably, Adidas has strategically reduced the depth of its promotions by 30 to 60 basis points in a highly promotional environment, a move anticipated to bolster its gross margin. This contrasts with competitors like Nike, which has reportedly increased promotional activities and faces ongoing challenges with inventory and product innovation. Consequently, UBS has revised its forecast for Adidas's 2025 currency-adjusted sales growth in Greater China to 14%, up from a consensus of 12% and previous expectations of high-single-digit to low-double-digit growth. This positive outlook for Adidas persists despite overall sluggish athletic wear sales growth in China, which saw only low-single-digit percentage year-over-year increases in April and May, below expectations, as consumers exercise caution amidst macroeconomic uncertainty and shift towards more promotional online channels.

Key Decisions for Investors

• Investors should consider Adidas's sustained market share gains and improved gross margin outlook in China, supported by disciplined promotional activity, as a positive factor relative to peers like Nike.
• Monitor upcoming Adidas product launches closely, as their timely arrival is key to realizing the firm's upgraded low- to mid-double-digit growth projections for 2025 in the region.
• Evaluate the potential for continued outperformance by Adidas against the backdrop of a generally weak Chinese athletic wear market, where overall sales growth rates in April and May were below expectations at low-single-digits.
• Factor in the risk that persistent macroeconomic uncertainty and cautious consumer spending in China could still impact overall sector demand, despite Adidas's current relative strength.