Beyoncé Collaboration Could Catalyze The Big Rally in Adidas Stock
Over the past several years, the global athletic apparel industry has been defined by intense competition between the industry’s two heavyweights, Nike (NYSE:NKE) and Adidas (OTCMKTS:ADDYY).
Here’s a short history. From 2015 to 2018, Adidas leveraged unique celebrity endorsements (think Kanye West) to turn into a lifestyle brand.
In doing so, they attracted non-athletes to their brand, became the king of the athleisure space and stole significant market share from Nike.
Adidas’ revenue growth rates accelerated higher and Nike’s fell flat. Adidas stock surged and Nike stock didn’t.
Then Nike responded in 2018 with new stores, new marketing campaigns and new products. All of those efforts were a smashing hit. Ever since, Nike has regained lost share from Adidas and the company’s revenue growth rates have accelerated higher while Adidas’ growth rates have meaningfully slowed. Nike stock has popped, Adidas stock has lost some momentum.
Now I think it’s time for the tide to turn yet again.
Adidas has just debuted its collaborative apparel line with pop star Beyoncé’s Ivy Park activewear brand.
For all intents and purposes, the Beyoncé Ivy Park line in 2020 has the potential to do exactly what the Kanye West Yeezy line did in 2015.
That is, energize brand demand, re-accelerate sales growth and breathe life into Adidas stock. In short, make Adidas the coolest brand in athleisure again.
As such, I think it may be time to get bullish on ADDYY stock. The company’s growth trajectory is only going to get better from here.
Ivy Park Collaboration Has Huge Potential
There are two simple truths underlying the bull thesis on Adidas stock. First, Adidas is a lifestyle brand — not a performance brand — and they get their brand momentum from celebrity endorsements, not athlete endorsements. Second, the Beyoncé endorsement and Ivy Park line could be as big for Adidas as the Kanye West endorsement and Yeezy line.
A quick look at the past five years’ numbers proves that first truth. West and Adidas debuted their first Yeezy shoes in October 2015. Throughout the first half of 2015, Adidas was rattling off 5% to 9% sales growth rates. But following the launch, Adidas’ sales growth trajectory exploded.
From the third quarter of 2015 to the second quarter of 2018, Adidas rattled off more than 10 consecutive quarters of 10%-plus constant-currency sales growth, with impressive 20%-plus growth in first half of 2016 (directly after the Yeezy launch). Adidas stock skyrocketed from $45 to $120.
That’s a pretty obvious correlation. And sure, correlation doesn’t equal causation. But considering that the Yeezy launch was the only considerable product development for Adidas in late 2015, one can reasonably conclude that the Yeezy line was the catalyst for this multi-year sales surge.
With respect to the second truth, it’s also pretty easy to see how Beyoncé’s Ivy Park line could as big as (if not bigger than) Kanye West’s Yeezy line.
Kanye West is one of the most celebrated and followed male musicians in the world, especially among younger audiences. Beyoncé holds a similar position in pop culture, with arguably wider appeal and significantly less controversy.
So, it stands to reason if Kanye West clothing was a huge hit with the athleisure crowd, Beyoncé clothing will be, too.
Adidas Stock Could Keep Surging
The Adidas growth narrative has fallen back to where it was in early 2015. That is, over the past four quarters, constant-currency sales growth at the company has slipped below 10%.
This won’t last long.
The launch of the Beyoncé Ivy Park line will re-energize brand demand globally. It’s true that Adidas won’t sell a bunch of Ivy Park stuff: the supply is deliberately constrained. But, Ivy Park buzz will drum up brand awareness, and consumers will up their spending on all Adidas products, as the brand once again becomes the “cool thing to wear” in the athleisure space.
Revenue growth rates will re-accelerate back above 10%. Considering the weak laps, they could even run to 20%-plus again, they did in early 2016.
Back then, this significant revenue growth acceleration led to Adidas stock climbing from $45 to $90, essentially doubling, in a year. I doubt a rally that big will unfold this time, given valuation differences (in 2015, ADDYY stock was trading around 1-times trailing sales; today, it trades around 2.5-times trailing sales).
Still, revenue growth acceleration from single-digit territory to double-digit territory over the next few quarters should have a positive impact on Adidas stock. It may also have a negative impact on Nike stock (since the two compete for the same customer base). So if you’re looking for exposure to the athletic apparel space over the next two years, Adidas stock may be your best bet.
Bottom Line on ADDYY Stock
The Ivy Park line is a huge deal for Adidas. The last time the brand debuted a major celebrity collaboration this was in 2015 with Kanye West. Over several subsequent quarters and years, the Adidas brand fired on all cylinders and Adidas stock roared higher.
A similar dynamic could play out this time, given the similar popularity and influence of Beyoncé. If it does, the big rally in Adidas stock is far from over.
As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.
Beyonce Partners With Adidas As Its Latest Celebrity Collaborator
Adidas (OTC:ADDYY) will collaborate with pop star Beyonce Knowles in an exclusive partnership, a move the athletic brand is betting will pay off with younger consumers.
The decision, announced on Thursday, makes Beyonce the brand's most recent celebrity collaborator, which adidas calls its “creative partners.” Other celebrities who work with the sneaker company include rapper Kanye West, designer Alexander Wang, and actor and musician Donald Glover.
Beyonce will design her own line of sneakers and clothing for adidas, as well as revitalize her streetwear brand Ivy Park, which was founded in 2016.
Image Source: adidas
Beyonce's brand power
Adidas' decision to partner with Beyonce is perhaps one of the brand's most deliberate attempts at gaining market relevance.
The company's multi-season Yeezy collaboration with West became a social media sensation, and the brand is now estimated to be worth around $1.5 billion.
But Beyonce brings even more global exposure to the German brand in the ever-competitive world of athleisure.
Beyonce boasts a mammoth following social media — she has the eighth-most-popular Instagram account, with over 126 million followers — and is one of three female vocalists to have 20 or more No. 1 hits in their career.
She has only toured seven times but routinely sells seats out in seconds.
In 2016, when she released her most recent album, “Lemonade,” Beyonce became the highest-paid musician but over 90% of her income came from touring — not album sales.
Adidas ly recognized Beyonce's international appeal and showmanship: People to listen to Beyonce, but they'll pay to see her. Imagine what they'll do when they can pay to start dressing her.
“This is the partnership of a lifetime for me,” Beyonce said in a statement. “adidas has had tremendous success in pushing creative boundaries. We share a philosophy that puts creativity, growth and social responsibility at the forefront of business.”
Ivy Park, the star's streetwear brand, was originally a collaboration with Topshop billionaire Phillip Green.
Beyonce bought out his 50% stake in the company late last year after allegations of sexual harassment and racial discrimination surfaced.
The singer was applauded for her decision to take over 100% of the company, which she will be “relaunching and expanding” globally with help from adidas.
Celebrity partnerships in the sneaker world have long been the norm, with the most notable example being Nike's (NYSE:NKE) collaboration with basketball legend Michael Jordan. That partnership, which began in the 1980s, remains the gold standard for celebrity athlete collaborations. But adidas is catching up.
adidas brought in $21 billion in revenue in the 2018 fiscal year, compared to Nike's $34.5 billion, on a constant currency basis.
Yeezy revenue figures aren't publicly available, however it was only in 2017 that adidas — the entire company — doubled its footwear sales, reaching 13% to become the second-most popular athletic shoe choice in the United States and overtake Jordan. Jordan's popularity shed a third of its sales during the same period.
At the end of 2018, the combination of Nike, Jordan, and Converse enjoy approximately 44% of the market share whereas adidas comes in at number two, with 17%. But given Beyonce's immense popularity, and her already baked-in Ivy Park collection, her collaboration will almost certainly help to bolster adidas' overall presence.
More than a sneaker
Nike took a stand in its collaboration with former NFL quarterback and social activist Colin Kaepernick with a divisive advertising campaign that ran in late 2018. Adidas, however, watched from the sidelines and, in some cases, actively avoided wading into controversy.
For example, when West caused a social media firestorm after declaring his support for President Trump, adidas CEO Kasper Rorsted reiterated his support for the rapper, saying he doesn't “sign up” for West's political commentary but stands behind his “extremely successful” partnership.
Yet with Nike enjoying a jolt of buzz, increased support from a younger customer base empathetic to social causes, and strong quarterly earnings that followed, it's possible adidas wants a piece of the pie. Just last month, the company rolled out a campaign to push for female equality and visibility in sports.
A collaboration with millennial-favorite Beyonce may firmly place adidas into the category of a lifestyle brand that so many apparel companies now strive to market themselves as.
It's too early to tell what's in store for the partnership, but in a statement, the singer declared that she plans to curate a “unique purpose-driven program focused on empowering and enabling the next generation of athletes, creators and leaders.”
Surely adidas will be selling more than just a sneaker.
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