Adidas: start of trading on Swiss DOTS

The sporting goods manufacturer is going through a bad patch as the football World Cup unfolds. Slowing economic activity in China, intense price war and rising costs are hurting Adidas. Whether traders are betting on the OEM’s performance or seeing it continue to falter, everyone will find the right instruments for them on Swiss DOTS, Switzerland’s leading OTC platform for leveraged products.

The whistle for the opening match of the 2022 FIFA World Cup™ will sound on November 20, 2022, in Al Bayt Stadium, Qatar. The moment should mark the start of a festive period for Adidas. The sporting goods manufacturer’s three-stripe logo is indeed ubiquitous in this tournament. Adidas is first and foremost a partner and official equipment supplier of FIFA, the International Federation of Association Football. Then, 5 of the 32 teams in the competition are wearing Adidas flocked jerseys. Among them, three favorites: Germany, Argentina and Spain. However, before the start of this event, the atmosphere at the group’s headquarters in Herzogenaurach, Bavaria, seems to be anything but euphoric. Indeed, the World Cup is controversial due to the season, the climatic conditions and especially the human rights situation in Qatar.

Above all, there is the real slump faced by Adidas on the sidelines of this major event. The World Cup held in the desert state could even act as a farewell tour for its CEO, Kasper Rørsted. In August, Adidas announced that it was separating from the Dane, who has headed the group since 2016. As soon as a successor has been found for him, he should give up his chair next year. Even though Adidas was full of praise for Kasper Rørsted in the press release announcing the news, this unexpected change at the top of the pyramid is also an admission of structural difficulties within the world number 2 on the market of shoes. sport stuff. This change comes “in order to allow the company to make a new start”, announces the group publicly.

Cold sweats for the sports giant

With the publication of provisional figures for the third quarter of 2022, Adidas is clearly showing its unfortunate posture. After adjusting for exchange rates, turnover increased by only 4% in July and September, compared to last year. For the important Chinese market, Adidas announced a decline in revenues “in double-digit proportions”. In a press release, the Bavarian group explains that “This is due to the ongoing large-scale COVID-19 restrictions as well as the high stocks in store.” In terms of operating margin, Adidas posted a single-digit decline in the third quarter. With a rate of 8.8%, the indicator is approximately three percentage points below the level of the previous year. As for the surplus, it was more than halved to stand at 179 million euros.

“Earnings growth in the third quarter was hampered by several non-recurring charges amounting to nearly 300 million euros,” the officials wrote. These are largely the costs induced by the divestment in Russia. Over the year as a whole, exceptional events, such as the patent dispute with its American rival Nike, should amount to half a billion euros. According to the company, customer footfall in China remains rather low. In addition, Adidas seems to want to sell its large stocks. In view of this delicate situation, the CEO could only revise the 2022 forecast downwards, for the second time in three months.

Strong result warning despite FIFA World Cup

For this financial year, Kasper Rørsted now anticipates an increase in sales of around 5%, after adjusting for exchange rates. The FIFA World Cup should particularly help the group achieve double-digit growth for the fourth quarter. The outgoing CEO, however, foresees only an operating margin of 4%. Ultimately, he expects a surplus of around 500 million euros for 2022. If this were to be the case, Adidas would only slightly surpass its level of 2019, the year of the COVID-19 pandemic (see graphic). The latest earnings warning is even more worrying, when we recall the ambitions set by Management at the start of the year. With double-digit revenue growth, initial forecasts called for profit from operations between 1.8 billion and 1.9 billion euros.

Adidas earnings: back in crisis mode
Profit from continuing operations (in millions of euros)
e=estimated (company forecast); source: Adidas; data as of 20.10.2022

Adidas faces a challenging market environment, inflationary pressure across the value chain, as well as unfavorable exchange rates. The company has taken various measures, including a hiring freeze. During the fourth quarter of this year, the cost reduction program should once again generate exceptional charges. For 2023, the Board of Directors would like to offset the cost reductions for an amount of up to 500 million euros. It is therefore a herculean task that awaits the successor of Kasper Rørsted. The current good results of Puma show that the problems encountered by Adidas are also of internal origin. Indeed, despite the vagaries of the markets, its neighboring competitor is posting a record price in 2022, operationally. Puma collections now seem to appeal more to athletes around the world. If only for the World Cup, the world number 3 provides the outfits of a team more than Adidas. The Nati is one of the nations that will display the feline logo on their shirts.

A wise investment

On the stock market, Puma is doing barely better than its competitors. For 2022, Puma and online fashion retailer Zalando are currently at the bottom of the DAX table. The Adidas share price even fell for the first time since the spring of 2016 below the 100 euro mark, as the correction could not prevent it from falling below this threshold. However, the Large Cap seems more and more overvalued. In any case, this is the opinion of analysts, who have not yet completely drawn a line under Adidas. However, eight research companies currently rank the value as “buy”. At the same time, Reuters counts 23 “hold” and 6 “sell” recommendations.

Brave investors can bet on an uptrend – probably driven by the World Cup – in Adidas’ price through the mini-long future (value 122401856). With this product, Societe Generale places the Stop Loss bar at 87.35 euros, i.e. nearly 10% below the current underlying price. This situation results in a leverage of 7.5, among other parameters. Upside participation is much lower in the case of another mini long future (value 121518262) of the Swiss DOTS fund. The Stop Loss threshold is therefore lower there, at 74.45 euros.

2022.11.28.Adidas Course
Adidas stock: in the depths of the stock market
(in euros)

Just in time for the football event, Vontobel bank launched several new Adidas leveraged products on the OTC platform. Among them, some short-term put warrants. Supporters of the fall can in particular bet on bearish prices with a security (value 121586415). The exercise price is established here at 105 euros, hence a good quotation of the warrant in the currency. Conversely, the strike price of another put (value 121587614) is slightly below Adidas’ current quotation. For these two values, the closing is scheduled for December 16, 2022, i.e. two days before the World Cup final. We will then see if Adidas will get on the podium with one of its teams, or if it will be forced to leave its place to the competition.

About Swiss DOTS

Swiss DOTS is the leading Swiss OTC platform for leveraged products. The copper derivatives mentioned above are part of the more than 90,000 trading ideas that investors can take advantage of every day from 8:00 a.m. to 10:00 p.m. with an advantageous price from CHF 9 flat/transaction.

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