Berenberg Capital Markets Equity Research Game plan adidas

Transcription

Berenberg Capital Markets
Equity Research
Game plan
adidas – Buy (initiation)
Puma – Hold (initiation)
John Guy
Analyst
+44 20 3465 2674
[email protected]
Bassel Choughari
Analyst
+44 20 3465 2675
[email protected]
Rupert Trotter
Specialist Sales
+44 20 3207 7815
[email protected]
25 April 2013
Sporting Goods
For our disclosures in respect of section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG) and
our disclaimer please see the end of this document.
Please note that the use of this research report is subject to the conditions and restrictions set forth in the disclosures and
the disclaimer at the end of this document.
Sporting Goods
Table of contents
Game plan
4
Market dynamics
5
Routes to 2015
18
Margin and costs metrics
42
Innovation is essential “skin in the game”
45
Commodity cost pressure or relief?
55
Sporting goods events and share price performance
58
Currency
66
Company KPIs
68
Valuation
71
adidas
76
Financials
101
Puma
104
Financials
127
Disclosures in respect of section 34b of the German Securities
Trading Act (Wertpapierhandelsgesetz – WpHG)
130
Contacts: Investment Banking
133
3
Sporting Goods
Game plan
● We initiate coverage of adidas and Puma. Both companies are in the
●
●
●
●
process of implementing 2015 investment strategies. We believe
adidas is at an advanced stage in planning, execution and delivery of
its targets compared with Puma. However, we acknowledge the
possibility of majority shareholder Kering Group (formerly PPR)
acquiring the remaining 17.6% stake in Puma that it does not own at a
premium to the current share price, hence Puma’s special situation.
adidas offers investors a three-year (FY12-15E) sales and EPS CAGR
of 5.5% and 23.2% respectively. We expect adidas to increase its share
of the global sporting goods market by 560bp, outperforming average
market growth of 1.5x global GDP (FY12-15E). We view FY13 as a
transitional year with greater operating leverage expected in FY14 and
FY15. According to our analysis, adidas ought to exceed its 2015 sales
target of €17bn by c.3% to €17.5bn and outperform its FY15 11%
EBIT margin target by 90bp. Our FY15 earnings estimates are c.13%
ahead of Bloomberg consensus. We initiate with a Buy rating and a
€95 price target, providing 25% upside versus current levels.
We view Puma as a special situation. Kering currently owns 82.4% of
Puma, which has recently experienced footwear market share losses,
management departures and weak operating performance. In our
view, Puma’s earnings rehabilitation will be accelerated by Kering’s
Jean-Francois Palus and a new Puma management team under
recently appointed CEO, Bjorn Gulden. However, the pertinent
questions remain: how Puma will arrest declining market share and
attract quality senior management? If Kering acquires the outstanding
17.6% of Puma’s remaining shares in order to fully access Puma’s
balance sheet (FY12 net cash: €249m) and increases the 12-year
average pay-out ratio of 13.8% more in line with peers (adidas’s FY12
pay-out ratio was 35.7% compared with a 12-year average of c.24%),
we would expect Kering to pay a premium for the outstanding shares.
adidas trades on FY13E and FY14E P/Es of 16.1x and 13.2x
compared with its seven-year average P/E of c.17x. According to our
analysis, adidas has the lowest PEG in the sector at 0.5x versus our
market capitalisation weighted average of 1.3x and Puma’s 1.7x. Our
€95 target price, based on our P/E analysis and driven by our earnings
and cash flow forecasts implies CY13E and CY14E P/Es of 20.1x
and 16.6x and is supported by our DCF (€98 assuming 9% WACC
and 3% terminal growth). We expect adidas to take 560bp global
sporting goods market share (FY12-15E) and drive robust positive
operating leverage from FY14 onwards on the back of improved
retail/wholesale mix, sourcing, supply and distribution efficiencies.
Puma currently trades on FY13E and FY14E P/Es of 16.5x and 14.4x
versus its seven-year average of 14.0x. According to our analysis,
Puma has the highest PEG versus global peers at 1.7x compared with
our market capitalisation average (FY12-15E) of 1.3x and adidas’s at
0.5x (Nike: 1.5x). Our €235 price target, based on our P/E analysis
and driven by our earnings and cash flow forecasts, implies CY13E
and CY14E P/Es of 17.0x and 14.9x respectively, supported by our
DCF (€237 assuming 9% WACC and 3% terminal growth). We
acknowledge EBIT margin upside risk in 2014 driven by short-term
accelerated restructuring/cost rationalisation as opposed to material
market share gains. Moreover, we do not rule out the possibility of
Kering acquiring the outstanding free float at a premium to current
share price levels.
adidas
Buy (initiation)
Current price
EUR75.90
Price target
EUR95.00
19/04/2013 Frankfurt Close
Puma
Hold (initiation)
Current price
EUR228.00
Price target
EUR235.00
19/04/2013 Frankfurt Close
Rating system: Absolute
25 April 2013
John Guy
Analyst
+44 20 3465 2674
[email protected]
Bassel Choughari
Analyst
+44 20 3465 2675
[email protected]
Rupert Trotter
Specialist Sales
+44 20 3207 7815
[email protected]
4
Sporting Goods
Market dynamics
In our view, global sporting goods companies such as Nike and adidas tend to
combine internal and external sources in order to assess global sporting goods
market size, share evolution, strengths and opportunities.
We believe that Euromonitor defines the global sporting market best as the
“aggregation of performance, outdoor and sports inspired clothing and footwear”,
adding: “Sportswear includes products for all ages including sportswear for
children. Sportswear includes items across all clothing and footwear categories
such as shorts, trousers, dresses, skirts, tops, jumpers, jackets, coats, track
suits/athletic sets, underwear, swimwear, hosiery, clothing, accessories including
headwear, gloves and scarves.”
We note that the definition highlights the split between performance and lifestyle
categories as well as incorporating category ranges for apparel, footwear, hardware
and accessories.
According to our estimates, the sporting goods market generated a five-year sales
CAGR of 4.3% between 2007 and 2012 and is expected to grow at an estimated
three-year sales CAGR of 4.1% from 2012 to 2015.
Global sporting goods market value (€m) and estimated growth (%)
Source: Berenberg estimates
At first glance, it would appear that global sporting goods market growth is
cyclical, given the shape of growth within the backdrop of the financial/credit
crisis from 2007 to 2010.
However, we note that the sporting goods market achieved average annual sales
growth at 2.2x the pace of global GDP from 2007 to 2012, which supports our
view that the sporting goods market demonstrates cyclical but also secular growth
trends supported by health and well-being regimes within a gradually ageing
demographic.
We believe that the sporting goods market will continue to grow at a faster rate
than global GDP, with market share winners such as adidas and Nike growing at
above-average sporting goods market growth rates. Our global sporting goods
average multiplier from 2012-15E implies 1.5x growth versus global GDP, with
adidas at 2.2x versus global GDP, Nike at 2.8x versus global GDP and Puma at
1.6x versus global GDP.
5
Sporting Goods
Global sporting goods FX neutral growth (%) vs. adidas, Nike and Puma and implied multiples
Real global GDP growth (%)
Sporting goods multiplier
2010
4.0
1.8x
2011
2.9
3.1x
2012
2.2
1.8x
2013E
2.4
1.6x
2014E
3.2
1.4x
2015E
3.0
1.4x
Global sporting goods (FX neutral) %
adidas growth (FX neutral) %
adidas implied multiplier
Puma growth (FX neutral) %
Puma implied multiplier
Nike growth (FX neutral) %
Nike implied multiplier
7.1
9.0
2.3x
3.6
0.9x
5.4
1.4x
8.9
13.0
4.5x
12.1
4.2x
12.3
4.2x
4.0
6.0
2.7x
4.6
2.1x
7.5
3.4x
3.9
5.0
2.1x
2.2
0.9x
6.5
2.7x
4.3
6.5
2.1x
5.2
1.6x
7.4
2.3x
4.1
6.4
2.1x
4.8
1.6x
8.0
2.7x
Source: Berenberg estimates, company data
We acknowledge the opportunity for Kering to fully acquire the outstanding free
float in Puma (Kering currently owns 82.4% of Puma) in order to fully utilise the
balance sheet (FY12 net cash of €249m, forecast to increase to €446m by FY13E)
and increase the lowly pay-out ratio of 10.7% (adidas’s FY12 pay-out ratio
increased from 34.1% in FY11 to 35.7% in FY12).
Historically, Nike has dominated key sporting goods market regions such as the
US. We note that the Nike brand had more than a 30% higher sales base versus
adidas and a c.380% higher sales base versus Puma for respective FY11 reporting
periods (Nike: May 2011; adidas: December 2011; and Puma: December 2011).
The adidas brand increased currency neutral sales by 10% (15% on a reported
basis) to €11,344m with e-commerce sales up 78% during the year as management
continues to focus on key “attack markets” such as North America, Greater China
and CIS/Russia.
As the second-largest global sporting goods retailer, adidas has relatively low
market share in the US – for example, we estimate adidas apparel brand North
American market share in US dollars was just over 4% at a wholesale level
(excluding adidas’s TaylorMade-adidas Golf (TMAG) brand and Reebok) in 2011
compared with Nike at c.8%, hence we view the North American market as a great
opportunity for the adidas brand given its low share base within the largest and
arguably the most dynamic sporting goods market. Moreover, adidas’s regional
profitability remains well below the group average (we estimate an FY12 US EBIT
margin of less than 6.0% compared with a group EBIT margin of 8.0%).
We expect adidas to gain incremental share in this highly competitive market as
part of its Route 2015 investment strategy, which is focused on building brand
loyalty from the grass roots upwards, principally through connecting US high
school children at an early age and acting as clothing and footwear sponsors to
high-school football (American football), basketball, soccer, lacrosse, athletic and
other sporting/fitness teams.
We highlight below the strong progress adidas has made through increasing its
North American high school kids (HSK) focus channels from 2009 to 2012 and
note the sales channel splits as of August 2012. As more emphasis is placed on
retail/shopping mall store destinations as well as shop-in-shop formats inside key
wholesalers, so we expect brand momentum, market share and price/mix to
improve through adidas’s increasing US retail exposure.
6
Sporting Goods
adidas HSK focus channels (%)
adidas US channel sales (August 2012)
100%
80%
60%
60%
53%
49%
40%
47%
51%
2009
2010
38%
23%
74%
40%
20%
62%
3%
0%
2011
HSK focus channels
2012
Other channels
Wholesale
Retail
ecomm
Source: Berenberg Bank estimates, company data
We highlight below the historical global sporting goods market growth and
forecast growth versus adidas, Puma and Nike (Bloomberg consensus growth
calendarised).
Berenberg estimated market growth vs. adidas, Nike and Puma (local FX)
15.0
10.0
5.0
0.0
-5.0
-10.0
2007
2008
2009
adidas
2010
2011
Puma
2012
Nike
2013E
2014E
2015E
Market
Source: Berenberg Bank estimates, company data, Euromonitor, Bloomberg estimates (Nike)
We expect Puma to underperform the market in 2013 by 170bp and we await
further details of the new management team (CFO and senior management)
structure, which should come to light within the next few months.
Forecasted out/underperformance vs. global sporting goods (bp) 2007-15E
500
400
300
200
100
0
-100
-200
-300
-400
2007
2008
2009
2010
adidas
2011
Puma
2012
2013E
2014E
2015E
Nike
Source: Berenberg Bank estimates, Euromonitor
7
Sporting Goods
Assessing the key players
By way of background and in order to better understand sales growth and market
share opportunities for the three largest global sporting goods players (Nike, adidas
and Puma), we compare adidas, Puma and Nike sales exposure by region, brand,
channel and product category. As Nike has a May year-end, preliminary tables
show FY11 reporting periods for the three brands respectively.
Puma vs. adidas (FY11)
Puma
Sales
(EURm)
% group
(EURm)
% group
1,312
44%
Western Europe
3,922
29%
Americas
967
32%
Eastern European EM
1,597
12%
Asia/Pacific
730
24%
North America
3,102
23%
Greater China
1,229
9%
Other Asian Markets
2,103
16%
Latin America
1,369
10%
Total
13,322
100%
By region
EMEA
Total
By region
3,009
100%
515
17%
Retail
2,793
21%
2,494
83%
Wholesale
8,949
67%
Other businesses
1,580
12%
Total
13,322
100%
By channel
Retail
Wholesale
Total
adidas
Sales
By channel
3,009
100%
By product
By product
Footwear
1,540
51%
Footwear
6,242
47%
Apparel
1,036
34%
Apparel
5,733
43%
Accessories
Total
434
3,009
14%
100%
Hardware
Total
1,347
13,322
10%
100%
adidas
9,867
74%
Reebok
1,962
15%
TMAG
1,044
8%
261
2%
By brand
Rockport
188
1%
Total
13,322
100%
Group total
13,322
Reebok-CCM Hockey
Group total
3,009
We outline Nike FY11 (May year-end) below and note that Nike brand (FY11)
sales were c.32% greater in euros (assuming an average US dollar/euro May 2010
to May 2011 exchange rate of 0.7165) versus the adidas brand in 2011 and c.380%
greater than the Puma brand (assuming 90% of total sales are Puma brand).
8
Sporting Goods
Nike FY11 (May year-end) sales splits (USDm)
Nike
Sales
(USDm)
% of group
% of Nike brand
Western Europe
3,868
19%
21%
Central & Eastern Europe
1,040
5%
6%
North America
7,579
36%
42%
Greater China
2,060
10%
11%
By region
Japan
Emerging markets
Global Brand Divisions
766
4%
4%
2,736
13%
15%
96
0%
1%
Nike Brand
18,145
Other businesses
2,786
13%
-69
0%
20,862
100%
Corporate
Nike group
100%
By channel
Wholesale
15,173
84%
Retail
2,876
16%
96
1%
18,145
100%
Nike Brand
By product
Footwear
11,518
55%
63%
Apparel
5,513
26%
30%
Equipment
1,018
5%
6%
96
0%
Nike Brand
18,145
Other
2,786
13%
-69
0%
20,862
100%
Nike
18,145
87%
Converse
1,131
5%
Nike Golf
658
3%
Cole Haan
521
2%
Hurley
252
1%
Umbro
224
1%
Corporate
Nike group
1%
100%
By brand
-69
0%
Nike group
20,862
100%
Group total
20,862
Nike brand total
18,145
Other
We acknowledge that both adidas and Puma have recently reported FY12 results,
hence our more recent side-by-side analysis below.
9
Sporting Goods
Puma vs. adidas (FY12)
Puma
Sales
(EURm)
% group
By region
adidas Group
Sales
(EURm)
% group
By region
EMEA
1,302
40%
Western Europe
4,076
27%
Americas
1,127
34%
Eastern European EM
1,947
13%
842
26%
North America
3,410
23%
Greater China
1,562
10%
Asia/Pacific
Total
3,271
100%
By channel
Retail
Wholesale
Total
Other Asian Markets
2,407
16%
Latin America
1,481
10%
Total
14,883
100%
By channel
624
21%
Retail
3,373
23%
2,647
88%
Wholesale
9,533
64%
Other businesses
1,977
13%
Total
14,883
100%
3,271
109%
Footwear
1,595
49%
Footwear
6,922
47%
Apparel
1,152
35%
Apparel
6,290
42%
524
16%
Hardware
1,671
11%
3,271
100%
Total
14,883
100%
adidas
11,344
76%
Reebok
1,667
11%
TMAG
By product
Accessories
Total
By product
By brand
Group total
3,271
1,344
9%
Rockport
285
2%
Reebok-CCM Hockey
243
2%
Total
14,883
100%
Group total
14,883
We reference Euromonitor market share analysis in order to highlight historical
adidas, Nike and Puma global market share evolution versus global peers – we
note that the global sporting goods market size factors both retail and wholesale
channels and compares market share evolution from 2007 to 2012.
Of the top 10 players, Nike and adidas have been the two largest share winners
over the past five years (2007-2012). Nike increased its global sporting goods
market share by 200bp to 14.7% over this five-year period, with adidas gaining
140bp incremental market share to 11.5%. Of the top 10 global players, Puma was
one of only two companies to lose share, dropping 10bp to 2.1%.
VF Corp acquired Timberland in September 2011 for a total consideration of
$2.3bn ($43 per share) creating a $10bn apparel, footwear and sportswear
company, hence the incremental 100bp of market share gained from 2010 to 2011
to 2.6%.
Smaller winners included Asics (+20bp to 1.1%), Mizuno (+50bp to 1.1%) and
Under Armour (+40bp to 0.8%). Of the top 10 global players, Skechers USA lost
the most market share (down 30bp to 0.7%) and more recently its auditor, KPMG.
10
Sporting Goods
Top 10 and others share (2007)
Top 10 and others share (2012)
Nike
13%
Nike
15%
adidas
10%
Others
72%
Others
68%
adidas
11%
VF Corp
2%
Puma
2%
Asics
1%
VF Corp
3%
Asics
1%
Puma
2%
We expect size and scale advantages to prevail for Nike and adidas. In addition, we
explore what it means to innovate in this sector, concluding that major new
innovations not only assist with favourable price/mix evolution but represent the
“essential skin in the game” required to continue to drive sales volumes higher
across a broad range of sales categories and platforms.
Furthermore, in our view, innovation remains the key to helping consumers
identify with specific brands and allowing companies to significantly leverage
higher gross margin lifestyle collections on the back of successful global
performance-based product launches.
Top four global sporting goods market share evolution (%) (2007-2012)
16.0
14.0
12.0
10.0
14.1
13.5
12.7
10.9
10.1
11.5
11.3
10.7
10.4
14.7
14.0
13.7
8.0
6.0
4.0
2.0
0.0
1.6
2.2
2007
Nike Inc
1.5
2.2
1.5
2.2
2008
2009
adidas AG
1.6
2010
VF Corp
2.2
2.6
2.2
2011
2.6
2.1
2012
Puma/ PPR SA
Without sufficient investment in major new innovations (performance-related)
coupled with the appropriate air time to showcase the products via global sporting
icons, we believe that smaller sporting goods players will continue to become
marginalised – take Nike’s Air-Jordan in the 1990s (now the Jordan brand exists in
its own right under the Nike parent brand), adidas’s Predator football boot in the
2000s and Puma’s Sparco driving shoe collection, also during the 2000s.
Even the largest global players can afford to invest in “anti-big-brand” brands such
as the Converse brand (part of Nike), thereby squeezing out niche players while at
the same time appealing to the anti-sporting-goods establishment consumer.
We believe that market share downside risk remains for Puma as the company has
focused too much on higher-margin lifestyle collections without the necessary
investment in performance goods over the past few years. As a result, we expect
11
Sporting Goods
fast-fashion/fashion retailers such as H&M, Inditex, Lacoste and Boss to compete
more closely with Puma and take share.
Secular growth drivers
H ealth, fitness and well-being
As global longevity increases with a greater focus on a health and well-being, so we
expect sport and fitness to play a greater role in consumers’ lives.
We highlight sustainable high single-digit to low double-digit CAGR rates for the
global consumer trends relating to reduced fat and salt content, healthy/well-being,
nutritional and sport-related food products.
Reduced salt content demand expected to continue at c.12% (FY12-17E)
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
-
2.59
2.02 2.32
2005
4.17
3.03 3.28 3.36
2007
2009
4.75
2011
5.45
2013E
6.21
6.95
2015E
Asia Pacific
Australasia
Eastern Europe
Latin America
North America
Western Europe
7.82
8.34
2017E
We note that the expected demand CAGR (FY12-17E) for reduced fat content at
5.3% is expected to increase at a faster rate when compared with demand for
global sporting goods products (FY12-15E) of 4.1%.
Reduced fat content demand CAGR ahead of global sporting goods growth
140
120
100
80
60
40
20
0
114.8 121.1
103.5 108.9
98.5
90.2 93.7
80.4 82.8 86.3
73.8
65.7 69.1
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Asia Pacific
Australasia
Eastern Europe
Latin America
Middle East & Africa
North America
Western Europe
12
Sporting Goods
Global sales ($bn) CAGR (FY12-17E) for sports nutrition products
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
-
40.1
34.1 36.0 36.2
28.1 31.3
2005
2007
2009
51.6
44.1 47.8
2011
63.3
55.8 59.6
2013E
2015E
Asia Pacific
Australasia
Eastern Europe
Latin America
Middle East & Africa
North America
67.5
2017E
Western Europe
Health and well-being ($bn) CAGR (FY12-17E) vs. sporting goods CAGR of 4.1%
6,000
5,000
4,000
3,000
2,000
1,000
-
2005
2007
2009
2011
2013E
2015E
2017E
H&W Packaged Food & Beverages
Non-H&W Packaged Food & Beverages
We appreciate that estimated demand CAGR for more healthy and sportingrelated food and beverages are above our forecasted FY12-15E sporting goods
CAGR of 4.1%.
As the global population ages for longer, demand for healthier products should
rise at a more secular growth rate compared with sporting good demand, which is
more cyclical in nature given its reliance on major sporting goods events to act as
product launch/demand catalysts.
Our future sporting goods growth forecasts are slightly lower compared with
historic sales CAGR (FY07-12) of 4.3% according to Euromonitor.
However, relative to the market share winners such as adidas and Nike, sales
CAGR rates for healthy, sporting and nutritional food and beverages are more
closely aligned (adidas’s FY10-15E CAGR is 7.8% versus a FY12-15E CAGR of
5.5%).
13
Sporting Goods
An ageing demographic coupled with forecast global population growth
above sporting goods demand
According to the United Nations’ Population division, global population growth is
forecast at c.11% from 2010-15E compared with a 7.8% adidas group sales CAGR,
5.9% for Puma and 9.0% for Nike over the same period. Our future sales CAGR
estimates for the industry (4.1%) appear to be well supported by both global
population and health/well-being consumer trends.
United Nations’ forecast global population growth (%)
23.0
21.0
19.0
17.0
15.0
13.0
11.0
9.0
7.0
5.0
18.1 18.318.5
20.7
19.6
17.717.6 17.4
15.2
13.4
12.2 11.6
11.0
10.0
8.9
7.8
2025-2030
2020-2025
2015-2020
2010-2015
2005-2010
2000-2005
1995-2000
1990-1995
1985-1990
1980-1985
1975-1980
1970-1975
1965-1970
1960-1965
1955-1960
1950-1955
WORLD
Source: United Nations’ Population Division, Berenberg Bank estimates
We believe that major sporting companies (with size and scale) possess the ability
to outpace market growth over the mid- to long term, and under-represented
regions (such as North America for adidas) provide for faster growth albeit from a
lower base.
Major sporting events incite passion, loyalty and reinforce global brands
In our view, major sporting events not only provide entertainment for millions,
they also allow leading sporting goods companies to showcase their latest
performance and lifestyle-related products, which are worn by the world’s leading
sportsmen, women and youth teams across a broad range of sporting categories.
All major sporting goods manufacturers and retailers have long since endorsed
sporting icons to assist with marketing and brand enhancement, a trend we expect
to continue for those sporting goods players which have the size and scale to
invest in this expensive but necessary marketing medium. We note that Puma has
recently cut back on endorsement-related spending in an effort to improve shortterm profitability.
In the mid- to long term, we believe that incremental sporting icon/endorsementrelated investment will be driven by the ongoing facilitation of global sporting
event accessibility either through traditional media (television, radio and
newspapers) and/or via newer/faster digital and social media forums.
According to PricewaterhouseCoopers LLP and Wilkofsky Gruen Associates, the
total sporting goods media and event three-year sales CAGR ought to reach 5.4%
(FY12-15E) across all formats (gate revenues, media rights, sponsorships and
merchandising), which is ahead of our 4.1% sporting goods sales CAGR forecast
(4.1%). By format, media rights and sponsorship stand out as the fastest growth
categories.
14
Sporting Goods
Global sports market by format – ongoing events ($m)
2010
2011
2012E
2013E
2014E
2015E
CAGR
2012-15E
38,842
38,761
39,785
41,317
42,794
44,359
3.7%
% growth
0.0%
-0.2%
2.6%
3.9%
3.6%
3.7%
% total
34%
33%
32%
32%
31%
31%
25,459
26,850
28,460
30,062
33,507
35,106
3.6%
5.5%
6.0%
5.6%
11.5%
4.8%
Gate revenues
Media rights
% growth
% total
22%
23%
23%
23%
24%
24%
33,055
35,056
37,616
40,236
42,727
45,145
% growth
5.0%
6.1%
7.3%
7.0%
6.2%
5.7%
% total
29%
30%
30%
31%
31%
31%
Sponsorships
Merchandising
17,296
17,483
17,755
18,545
19,226
19,969
% growth
-1.6%
1.1%
1.6%
4.4%
3.7%
3.9%
% total
15%
15%
14%
14%
14%
14%
Total
114,652
2.0%
118,150
3.1%
123,616
4.6%
130,160
5.3%
138,254
6.2%
144,579
4.6%
7.2%
6.3%
4.0%
5.4%
Source: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates
By region, we note that Asia-Pacific and Latin America revenues are expected to
grow at the fastest rates over the next three years, with FY12-15E CAGR rates of
5.5% and 6.1% respectively. However, the EMEA three-year regional revenue
CAGR is also expected to grow at 5.5% (in line with Asia CAGR rates).
Global sports market by region – ongoing events only ($m)
2010
2011
2012E
2013E
2014E
2015E
CAGR
2012-15E
48,412
49,692
51,733
54,494
58,564
60,770
5.5%
% growth
0.2%
2.6%
4.1%
5.3%
7.5%
3.8%
% total
42%
42%
42%
42%
42%
42%
EMEA
39,407
40,698
42,628
44,807
47,066
49,371
% growth
3.1%
3.3%
4.7%
5.1%
5.0%
4.9%
% total
34%
34%
34%
34%
34%
34%
Asia-Pacific
21,152
21,868
23,016
24,277
25,630
26,994
% growth
4.0%
3.4%
5.2%
5.5%
5.6%
5.3%
% total
18%
19%
19%
19%
19%
19%
Latin America
5,681
5,892
6,239
6,584
6,994
7,444
% growth
1.9%
3.7%
5.9%
5.5%
6.2%
6.4%
North America
% total
5%
5%
5%
5%
5%
5%
Total
114,652
2.0%
118,150
3.1%
123,616
4.6%
130,162
5.3%
138,254
6.2%
144,579
4.6%
5.0%
5.5%
6.1%
5.4%
Source: PricewaterhouseCoopers, Wilkofsky Gruen Associates
Moreover, digital, social and sporting internet forums continue to gain traction.
For example, adidas currently has over 30m Facebook fans compared with the
world’s leading digital luxury player, Burberry, with c.13m fans.
Unlike the luxury goods model, which is founded on pricing power, high barriers
to entry and exclusive product ranges, the global sporting goods market has a
15
Sporting Goods
broader demographic base which relies heavily on sporting events/icons to help
promote product awareness.
Sporting goods companies are able to leverage lifestyle products on the back of
more costly performance-related products, which tend to benefit from a higher
gross margin (which are easier to make with fewer technical components and faster
to ship, and thus more positive in terms of working capital).
In our view, pricing power is not as prevalent for sporting goods players – for
example, the 20-year $99.99 opening price point for trainers in the US remains
intact today. We acknowledge that both luxury and sporting goods sectors place
research and design/development as a core function of their respective business
models, which are aimed at driving product awareness, market share gains and
brand loyalty. Moreover, both industries have long since made use of “brand
ambassadors” (successful sporting icons, actors, actresses and politicians) in order
to promote brands. Sporting goods companies work with such icons in order to
develop leading-edge technology, adding value to brand credibility/equity from
which to launch more profitable lifestyle brand collections.
Interbrand sporting goods movers and shakers
According to Interbrand 2012 analysis, two sporting goods players dominate the
global market: Nike and adidas. Puma has fallen out of the top 100 global brands,
which in our view accentuates the benefits of global size and scale when it comes
to increasing consumer brand mind share.
According to Interbrand, adidas and Nike ranked 60th and 26th respectively within
its top 100 global brands as of 2012.
According to Interbrand, “brand strength measures the ability of the brand to
create loyalty and, therefore to keep generating demand and profit into the future”.
It adds: “Brand strength is scored on a scale of zero to 100, based on an evaluation
across 10 key factors that Interbrand believes make a strong brand.
The strength of the brand is inversely related to the level of risk associated with the
brand’s financial forecasts. A proprietary formula is used to connect the brand
strength score to a brand-specific discount rate. In turn, that rate is used to
discount brand earnings back to a present value, reflecting the likelihood that the
brand will be able to withstand challenges and generate sustainable returns into the
future.”
Interbrand brand value ($bn)
15
13
11
9
7
5
3
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Sporting goods
adidas
Nike
Source: Interbrand
16
Sporting Goods
In order for a global brand to be included within Interbrand’s global brand
rankings, it must have the following:
• at least 30% of revenues must come from outside the brands home
country;
• a presence in at least three major continents, as well as broad geographic
coverage in emerging markets;
• sufficient publicly available data on the brand’s financial performance;
• positive economic profit expected over the longer term, delivering a
return above the brand’s operating and financial costs; and
• a public profile and awareness above and beyond its own marketplace.
We highlight below Interbrand’s adidas and Nike sporting goods brand summaries
for 2012.
Interbrand adidas profile (2012)
Interbrand Nike profile (2012)
adidas
Nike
Rank: 60
Rank: 26
Value: US$6,699m
Value: US$15,126m
Despite its challenger position, adidas is still the number one
sports brand for millions around the world. The brand’s “adidas
is all in” campaign, featuring football/soccer stars Lionel Messi
and David Beckham, NBA star Derrick Rose, and pop icon Katy
Perry, has effectively united its Sport Performance, Sport Style,
and Originals subbrands. This broadened the presence of the
iconic three stripes, particularly online. The main clip has had
more than 2.5 million views, indicating a worthwhile increase in
marketing spend. adidas continues to focus on digital strategies
to promote its style in sports position, with some success. The
virtual miCoach is a great way to engage with customers, and
adidas Originals alone has more than 14 million Facebook fans.
The brand’s biggest challenge is to keep expanding its relevance,
which should see a boost from heavy media coverage of highprofile adidas-sponsored events such as the London Olympic
Games (adidas supplied sportswear and produced many
souvenirs) and the FIFA World Cup in 2014 in Brazil.
A global icon that transcends its category, Nike continually
increases the power of its brand through innovation — its
greatest strength. In 2012, Nike delivered numerous gamechanging products and slyly leveraged the London Olympics to
its advantage. An “ambush marketer” rather than an official
Olympic sponsor, the brand attracted publicity, spotlighted new
products and managed, as always, to link world-renowned
athletes to its latest offerings. As part of its long-term growth
strategy, Nike announced its intention to divest its Cole Haan
and Umbro businesses, which will allow it to focus its resources
on driving growth in the Nike, Jordan, Converse, and Hurley
brands. Nike is also using social media skillfully to generate
awareness and buzz, while continuing to engage the public
through events and contests like The Chance, an athletic talent
search. It is also expanding its breadth by incorporating
technology platforms into all of the work it does, which has kept
Nike well ahead of competitors. Though Nike is increasingly
seen as a sustainability leader, the company still needs to
improve its supply chain and environmental record. In this
regard, initiatives such as “Zero Discharge of Hazardous
Chemicals” in manufacturing by 2020, are highly relevant for the
brand.
Source: Interbrand
Puma failed to reach the top 100 global brands in 2012. We believe that new
management’s focus will continue to be on reducing costs through cutting back on
the number of loss-making directly-owned stores (the intention is to reduce the
European DOS network by c.90 to 2015), terminate several outstanding sporting
team/icon endorsements and reduce the number of SKUs (stock-keeping units)
manufactured every year. These issues are designed to improve working capital,
cash flow, profitability and assist with the implementation of a more streamlined
design process from performance to lifestyle sporting goods collections.
17
Sporting Goods
Routes to 2015
Each major sporting goods company has outlined respective investment strategies
and performance targets to 2015. We highlight below key investment strategies for
each company, how each company’s route to 2015 sales and profits differ and
conclude by stating which companies we believe will be the winners and losers in
the race for incremental market share and positive operating leverage.
adidas’s Route 2015 strategy
adidas is more than three-fifths through its Route 2015 investment strategy. Its
main aims are to:
• outperform total market growth (both GDP and the sporting goods
market);
• achieve group sales growth of 45% to 50% (FY10-15) to €17bn by 2015;
• continue growing the bottom line faster than the top line;
• outgrowing its major competitors in the next five years;
• achieve compounded earnings growth of 15%; and
• generate a group EBIT margin of 11% by 2015 at the latest.
During the investor/analyst field trip to Carlsbad in California last September,
adidas management revised divisional sales targets to 2015 by lowering Reebok
sales expectations and increasing both adidas brand and TMAG sales estimates.
While the net €17bn estimate was unchanged, the implied mix was positive with
TMAG sales forecast to be c.10% greater than Reebok’s by 2015.
The table below highlights management’s initial 2015 forecasts and revised targets
as of September 2012 with implied sales CAGR rates.
adidas old vs. updated brand sales and CAGR forecasts (FY10-15)
2010
2015 (old)
FY10-15 CAGR
2015 (updated)
FY10-15 CAGR
adidas Sport Performance
adidas Original & Sport Style
€6.5bn
€2.1bn
€8.5bn
€3.7bn
+5.5%
+12.0%
€8.9bn
€3.9bn
+6.5%
+13.2%
Total adidas
Reebok
€8.6bn
€1.9bn
€12.2bn
€3b.0n
+7.2%
+9.6%
€ 12.80
€2.0bn
+8.3%
+1.0%
Other brands
€1.4bn
€1.8bn
+5.2%
€2.2bn
+9.5%
Total
€11.9bn
€17.0bn
+7.4%
€17.0bn
+7.4%
Source: Company
The table below highlights management’s expectations from a divisional
perspective compared with specific brand sales CAGR assumptions. According to
our estimates, adidas needs to achieve three-year sales CAGR of just over 5%
compared with implied five-year sales CAGR of 7.4% in order to reach its goal of
generating €17bn of global sales by 2015 at the latest.
In our view, the implied sales CAGR looks reasonable although we expect to see
short-term headwinds (FY13) develop in terms of a tough comparison base,
negative currency impacts of c.2% and ongoing macro headwinds within southern
Europe and South Korea.
18
Sporting Goods
adidas old vs. updated divisional sales and CAGR forecasts
Wholesale
Retail
eCOM
Other Businesses
2010
€8.2bn
€2.4bn
€0.1bn
€1.4bn
2015 (old)
€10.6bn
€4.1bn
€0.5bn
€1.8bn
FY10-15 CAGR
+5.3%
+11.3%
+38.0%
+5.2%
2015 (updated)
€10.2bn
€4.1bn
€0.5bn
€2.2bn
FY10-15 CAGR
+4.5%
+11.3%
+38.0%
+9.5%
Total
€11.9bn
€17.0bn
+7.4%
€17.0bn
+7.4%
Source: Company
We expect adidas group to exceed its 2015 EBIT margin target of 11%. Through
combined initiatives such as increased retail sales penetration versus wholesale,
improved price/mix, best-in-class innovation and strong working capital
management on the back of sourcing, supply and distribution efficiencies, we see
upside risk to both gross margin (we forecast the group gross margin to increase by
290bp by 2015 to 50.6% compared with the FY12 group gross margin of 47.7%)
and EBIT margin targets. As a result, our FY15 group gross margin estimate of
11.9% is 90bp ahead of management’s internal target.
Commodity cost pressure ought to abate in 2013 (adidas doesn’t hedge the raw
material but the FOB/currency) as cotton, rubber and oil-based plastic prices
continue to decline yoy. As a result we expect, COGS as a percentage of sales to
fall 150bp to 50.8% in FY13. We expect Chinese labour cost pressure to
structurally increase although adidas continues to look for alternate partners and
may over time reduce its reliance on Chinese sourcing, though we appreciate that
China remains adidas’s most important sourcing market (31% of all suppliers were
located in China as of FY12).
For example, in footwear, we note that the overall representation of China in
adidas’s sourcing mix fell by 200bp in FY12 with an increased focus on regions
such as Cambodia and Vietnam where the cost of labour is lower relative to China.
Proven track record
Adidas’s nine-year sales, EBIT and diluted EPS CAGR rates (FY03-12) are solid
within the context of having acquired Reebok in 2006 and in view of the financial
crisis (2008-10) at 9.4%, 10.3% and 11.4% respectively. We note that adidas paid
$3.6bn (€2.9bn assuming a dollar/euro FX rate of 0.8 or 1.5x sales) for Reebok in
2006 (the deal was completed on 31 January 2006). During its first year with adidas
group (February to December), Reebok generated turnover of c.€2bn compared
with FY12 Reebok sales of €1.7bn.
Over the past six years (FY06-12), the adidas and TMAG brands have clearly
outperformed relative to internal peers and while management has a revitalised
plan to re-invigorate and reposition the Reebok brand under the House of Fitness
branding, we are sceptical about future Reebok sales and profit generation, which
is reflected in our five-year sales CAGR (FY10-15E) estimates for Reebok of
-0.6%.
We believe FY12-15E growth ought to improve, especially after losses from the
Indian operations in 2012, hence our three-year Reebok sales CAGR (FY12-15E)
of 3.7%.
19
Sporting Goods
adidas six-year CAGR performance (2006 – 2012)
adidas Group net sales, €m
Gross margin %
Adjusted EBIT, €m
Operating margin (adj. €m)
Diluted adj. EPS
P/E at year end
DPS
FY06
10,084
44.6%
881
8.7%
2.25
16.8x
0.42
FY07
10,299
47.4%
949
9.2%
2.57
19.9x
0.50
FY08
10,799
48.7%
1,070
9.9%
3.07
8.8x
0.50
FY09
10,381
45.4%
508
4.9%
1.22
31.0x
0.35
FY10
11,990
47.8%
894
7.5%
2.71
18.0x
0.80
FY11
13,322
47.5%
953
7.2%
2.93
17.1x
1.00
FY12
14,883
47.7%
1,185
8.0%
3.78
17.8x
1.35
6-year CAGR
6.7%
Net sales by brand
Adidas
Reebok
Taylor-Made-adidas Golf
Rockport
Reebok-CCM Hockey
6,626
1,979
856
293
202
7,113
1,831
804
291
210
7,821
1,717
812
243
188
7,520
1,603
831
232
177
8,714
1,913
909
252
200
9,867
1,940
1,044
261
210
11,344
1,667
1,344
285
243
9.4%
-2.8%
7.8%
-0.5%
3.1%
5.1%
9.0%
Source: Company data
We summarise our FY15E brand sales estimates and five-year CAGR evolution
below, which highlights our expectation of stronger brands sales and market share
evolution for adidas and TMAG brands versus Reebok.
In our view, faster sales growth at adidas and TMAG ought to result in margin
accretion given the structurally higher gross margins of both adidas and TMAG
brands versus Reebok.
For example, we note that adidas’s FY12 wholesale margin increased 10bp yoy to
42.1% compared with Reebok’s wholesale gross margin, which declined by 290bp
to 26.2%.
Within its retail division, adidas’s gross margin declined by 150bp to 62.1% (driven
by commodity cost pressures) while Reebok’s retail gross margin declined by
270bp to 55.1%.
We note that the FY12 group gross margin increased by 20bp to 47.7% supported
by structurally higher gross margins for both adidas and TMAG brands, supportive
of our future group gross margin evolution to 50.6% by FY15E.
Berenberg FY10-15E brand sales estimates vs. adidas management FY10-15E brand sales guidance
adidas
Reebok
TMAG & Other
Total
2010 2015 (Berenberg) Berenberg FY10-15 CAGR adidas updated adidas implied CAGR
8,714
13,534
9.2%
12,800
8.0%
1,913
1,857
-0.6%
2,000
0.9%
1,363
2,064
8.7%
2,200
10.0%
11,990
17,455
7.8%
17,000
7.2%
20
Sporting Goods
Pillars for growth – adidas’s group strategy
The adidas group mission statement states that adidas “strives to be the global
leader in the sporting goods industry with brands built on passion for sports and a
sporting lifestyle”.
In 2012, adidas’s performance met or exceeded expectations across every target
except for Reebok-CCM Hockey growth and the wholesale division, due to the
irregularities and subsequent write-downs at Reebok India.
adidas carried out an internal investigation and uncovered the inappropriate
recognition of sales, a failure to book sales and a failure to post credit notes to
accounts receivable. This resulted in a significant overstatement of net sales,
accounts receivable as well as materially incorrect accounting for inventories and
provisions. Management also uncovered four previously undisclosed warehouses
not declared in the official accounting records and that the practice of inflating
sales and profits had carried on for a few years.
adidas restated FY11 accounts in accordance with IAS8, which resulted in lower
net income attributable to shareholders of €58m for 2011. In addition,
shareholders’ equity in the opening balance for 2011 was negatively impacted by
€153m (non-cash) to account for prior year periods.
In 2012 goodwill impairment losses of €265m were recognised (within wholesale
cash-generating units, goodwill impairment loses amounted to €106m in North
America, €41m in Latin America, €15m in Brazil and €11m in Iberia). In addition
goodwill of €68m and €24m was impaired at Reebok-CCM Hockey and Rockport
resulting in a 17% goodwill reduction and a negative impact on total assets of 2%.
adidas’s 2012 targets vs. 2012 results
Targets 2012
2012 Results
adidas group
Wholesale
increase at mid- to high single-digit sales %
increase at mid-single-digit sales %
6.0%
2.0%
Retail segment
Other businesses
increase at low teens %
increase at low to mid-single-digit %
14.0%
17.0%
TMAG
increase low to mid-single-digit %
20.0%
Rockport
Reebok-CCM Hockey
increase at high single-digit %
increase at strong double-digit %
2.0%
9.0%
Gross margin
Operating margin
Average operating working capital (% sales)
around 47.5%
approaching 8%
moderate increase expected
47.7%
8.0%
20.0%
Capital expenditure
Gross borrowings
Net borrowings/EBITDA
€400m-450m
further reduction
maintained below 2.0x
EPS
to increase by 10% to 15% (€3.52 to €3.68)
Shareholder value
further increase
€434m
net cash €448m
-0.30x
€ 3.78
Share price +34%
DPS +35% to
€1.35
21
Sporting Goods
adidas’s global sales function is broken into three channels – wholesale, retail and
e-commerce. Route 2015 priorities include:
• an increase in controlled space to over 50% by 2015 (controlled space
includes own retail (DOS), e-commerce, mono-branded franchise stores,
shop-in-shops, joint ventures with retail partners and co-branded stores
with sports organisations and other brands);
• the implementation of an integrated distribution road map to ensure
future growth and maximise brand potential in key demographic
locations and;
• a leveraging of cross-channel sales opportunities and range efficiencies.
Key growth markets have been identified as North America, Greater China,
Russia/CIS, Latin America, Japan and the UK.
Key “attack markets” where adidas is dedicated to prioritising investment and time
are North America (where adidas remains under-represented versus its main rival,
Nike, and has the lowest regional EBIT margin – we estimate less than 6%),
Greater China and Russia/CIS. Internal expectations are for these three regions to
generate c.50% of group sales growth by 2015 (we estimate European emerging
markets, North America and Greater China to account for 47% of adidas group
sales by 2015 with €8.3bn).
Controlled space
The rationale for increasing controlled space is clear – adidas brands need to be
well represented across sales platforms in order to capitalise on consumer
convenience and product accessibility and assortment.
In our view, the greater percentage of controlled space adidas group has, the easier
it will be to monitor sell-in rates (selling into third party retailers) and sell-out rates
(selling to the end-consumer), thereby improving stock management, reducing
mark-down risk and optimising future cash flow.
Integrated distribution road map
The road map encompasses a joint approach between the three sales channels,
allowing the group to define how best to capture incremental sales and market
share without cannibalising the brands and distribution mix.
We believe this insight is a key function with an emphasis on product availability.
Perhaps slightly tenuous but should consumers confuse the adidas brands with
Reebok, this may result in a reduction of adidas sales (at higher wholesale and retail
margins) versus Reebok, which would have negative implications for the group’s
product and margin mix, thereby placing Route 2015 sales and margin targets at
risk.
We expect the road map will assist with sales and market share gains in historically
under-penetrated markets such as North America and help the company to
implement successful best practice operations, as in Russia (retail) and Greater
China, where adidas group enjoys its highest EBIT margins.
22
Sporting Goods
Online multi-channel growth tool kit
E-commerce sales increased by 78% to €158m in FY12, well short of adidas’s
€500m 2015 target. While the two-year sales CAGR is impressive at 69.5%, the
sales base is low.
adidas group e-commerce revenue (FY10-15E), €m
450
400
350
300
250
200
150
100
50
0
FY10
FY11
FY12
FY13E
FY14E
FY15E
eCommerce
According to our estimates, adidas group e-commerce sales will reach €412m by
FY15, c.18% below target. The implied five-year CAGR is 50% based on our
estimates and would be 56% assuming the €500m target was achieved.
We believe there are considerable opportunities to improve the global online
offering, firstly by aligning online brand activities across sales channels and
different geographies in order to achieve faster route to market, and secondly via
greater brand messaging/offering consistency coupled with increased consumer
focus.
In FY12, adidas launched a single e-commerce destination for the adidas brand.
The website fully integrates the adidas brand website and the brand’s e-shop in one
place. New country-specific e-shops have been established globally for both adidas
and Reebok with a full product/service offering in 20 countries. “Mi adidas” and
“Miteam”, two customisation sites for men and women, have also been created.
During FY13, the “mi adidas” and “your Reebok” sites will be evolved further and
the adidas e-commerce team will work more closely in conjunction with its CRM
database in order to improve consumer personalisation levels.
Global foundation range (GFR)
As part of a joint initiative between the global sales and global brands functions,
GFR was established to represent a set of products which must be sold through all
of the adidas group’s sales channels on a global basis.
As part of reducing selective SKUs across the different brands, we expect adidas to
continue to increase its product commonality, thereby improving the consistency
of the global offering, which ought to result in a higher stock turn and, as a
consequence, a working capital inflow.
23
Sporting Goods
Wholesale pillars
adidas strives to be the global leading sales organisation in the sporting goods
industry through:
• amplification of group brands across points of sale (POS) in all relevant
channels;
• strong relationships with the leading and most dynamic retailers;
• a highly motivated and highly skilled sales team;
• an industry-leading sales toolkit to drive sell-out rates (sell out to the
end-consumer); and
• a benchmark in servicing retailers with “world-class” efficiency.
The main strategic goal of the wholesale channel is to deliver profitable market
share growth. adidas’s most important third-party retail channels are sporting
goods chains, department stores, independent sporting goods buying groups,
lifestyle retail chains and e-tailers.
A faster product route to the wholesale market is important in terms of ensuring
share of third-party sponsored advertising, and market share, gross margin and
cash flow increases - the more stock sold early at full price, the less mark-down
risk.
We note that adidas offers clients access of a virtual sell-in tool, which provides
adidas sales teams with the full range in their pocket. Moreover, marketing a
reduced amount of SKUs to sell into third party retailers ought to increase speed
to market and save costs. The new tool is currently being rolled out across
different regions and is expected to cover c.60% of global wholesale pre-orders by
the end of 2013.
Retail space management (RSM) – POS level
The RSM project is designed to increase POS shelf space compared with external
peers’. Wholesale is cooperating with Retail along the full supply chain to the POS
with a goal of improving profitability per square metre as well as product
availability.
The two predominant models, which are expected to drive the success of the RSM
project are 1) franchising and, 2) never-out-of-stock (NOOS). adidas is working
ever closer with franchise partners, advising them on range propositions,
merchandising, training and guidelines in relation to store formatting, location and
product layout.
In our view, this is standard best-practice for retailers and luxury goods players.
Not only does the retailer build a closer partnership with the franchisee, the
franchisee is more likely to position adidas brands in the best selling areas in store,
thereby enabling adidas to steal an advantage over its competitors.
The NOOS programme comprises a core range of basic articles, the bulk of which
are on 12-24 product life-cycles and sell across all third-party channels and
markets. NOOS replenishment is designed to provide high levels of product
availability all year-round and is a radical improvement on the old twoseason/collection model, which relied on filling c.80% of the order book prior to
product delivery.
In our view, Puma still suffers from this legacy, which over the years has resulted
in either too much stock in the channel (leading to high-margin and brand equity
erosion on incremental product mark-down) or not enough supply to satisfy
24
Sporting Goods
demand. We note local Chinese sporting goods retailers such as Li Ning and Anta
are still suffering from having over-supplied the channel so aggressively ahead of
the Beijing Olympic Games in 2008.
We note that adidas has 40,000 partners globally, selling into 100,000 POS (7,500
are in China). As a result, we believe that selling tools and working closely with
retail all the way through the supply chain will be critical if adidas is to a) fully
understand local demand and consumption behaviour, b) monitor effectively sellin and sell-out rates of its brands versus peers, and c) ensure that it builds stronger
relationships for the future ensuring brand loyalty and incremental shelf
space/POS market share.
We forecast adidas wholesale to account for 60.2% of group sales by FY15
compared with 64.1% in FY12. The decline is due to the adidas group’s internal
focus on retail as the brand looks to increase its footprint in higher-margin
emerging-market regions and improve the price/mix while simultaneously taking
more control over its working capital management (stock turn, markdown and
replenishment rates).
Adidas Wholesale evolution to FY15E vs. Retail and other businesses
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
12%
12%
12%
12%
13%
14%
13%
14%
16%
18%
20%
21%
23%
24%
25%
26%
72%
69%
68%
67%
64%
63%
62%
60%
FY08
FY09
FY10
FY11
FY12
FY13E
FY14E
FY15E
Wholesale
Retail
Other Businesses
Source: Company data, Berenberg estimates
Retail strategic pillars
adidas aims to become a top retailer by delivering “healthy, sustainable growth with
outstanding return on investment”. Key focus areas are:
• the global consumer;
• the pursuit of operational excellence;
• successful exploitation of a portfolio of brands; and
• to drive operating leverage through global size and scale.
As of FY12, the adidas group operated out of 2,446 of its own stores for the adidas
and Reebok brands worldwide. We expect the number of stores to increase as the
adidas group looks to drive up its retail representation as a percentage of sales and
by so doing improve its price/mix architecture. Our model estimates that Retail as
a percentage of sales will increase by more than 1,000bp from FY08 to FY15 to
26%.
25
Sporting Goods
In order to simplify the shape of adidas group’s store chain, it has been clustered
into three different store types:
• brand centres – these are large stores carrying the full range of all adidas
sub-brands under one roof; the formats are limited and in exclusive
locations such as New York, Paris and Shanghai;
• concept stores – described as the commercial engine for sales and profit
across the group’s retail organisation (adidas, Originals and Reebok
concept stores); and
• factory outlets – this format facilitates the controlled clearance of excess
or out-of-date stock (returned by franchise partners, DOS and ecommerce).
Real estate teams ensure that each format fits the local market appropriately in
order to maximise sales and profit densities and new store openings will only be
permitted as long as they are supported by a business plan that meets pre-defined
criteria such as IRR, sales densities, a suitable pay-back period, traffic flow, average
ticket value and full price sell-through as a percentage of total sales.
The adidas group’s brand strategy
“The Global Brands division is responsible for brand positioning, brand strategy, product
creation, innovation and all the product and brand marketing functions of the adidas and Reebok
brands. The primary objective of this portfolio strategy is to ensure that our brands seize market
and category opportunities through well- defined and coordinated go-to-market strategies. Each
brand is responsible for the execution of its strategic focus by creating a constant stream of
innovative and inspiring products and generating communication strategies that represent each
brand category in an engaging and compelling way.”
When comparing adidas brands versus Puma’s, the primary observation to make is
the increased product and brand diversity at adidas compared with Puma. adidas’s
and Puma’s flagship brands accounted for 76% and c.95% of respective group
FY12 sales, yet adidas group brands are represented across every major sporting
category (Puma is not represented in basketball for instance – a major sporting
category in the US – and has claimed that expanding into other sporting goods
categories at this time would prove too costly) and have a much stronger presence
in performance-related products whereas Puma has historically been too
concentrated at the higher-margin end of the Lifestyle sporting goods category.
We compare and contrast adidas and Puma group sales by region, channel, brand
and category. We see material upside risk to adidas margin evolution predicated
around an improving price/mix, greater emphasis on innovation, increased retail
presence versus wholesale (positive for margin and working capital/cash flow) and
incremental regional market share.
adidas group regional mix (FY12)
Western
Europe,
27%
European
Emerging
Markets,
13%
Latin
America,
10%
Other
Asian
Markets,
16%
North
America,
23%
Greater
China,
10%
adidas group regional mix (FY15E)
Western
Europe,
27%
European
Emerging
Markets,
14%
Latin
America,
9%
Other
Asian
Markets,
17%
North
America,
22%
Greater
China,
11%
Source: Company data, Berenberg Bank estimates
26
Sporting Goods
We forecast that the adidas group’s eastern European emerging markets’, Greater
Chinese and other Asian markets’ sales will grow above the group average, hence
the forecast increase in regional sales representation.
We appreciate that the North American market is a key focus for adidas and
currently represents a great opportunity to improve below-group-average market
share and returns. We believe that the HSK strategy is sound and that our FY15E
North American regional mix of 22% versus 23% in FY12 may prove
conservative.
Puma regional mix (FY12)
Asia/Pac,
25.7%
Puma regional mix (FY15E)
EMEA,
39.8%
Asia/Pac,
28.1%
EMEA,
38.4%
Americas,
33.5%
Americas,
34.5%
We expect EMEA sales representation to decline for Puma, which is consistent
with its current transformation plan (rationalising 90 loss-making stores primarily
based in EMEA and North America). As we shall highlight under Puma’s strategic
investment plan to 2015, the short-term focus is on rebuilding profitability as well
as steadily increasing its investment in the lower margin Performance category.
adidas group brand mix (FY12)
adidas group brand mix (FY15E)
Reebok,
11%
TMaG, 7.8%
adidas,
76%
Reebok, 11%
adidas,
78%
Rockport, 2%
Reebok - CCM
Hockey, 2%
TMaG, 7.8%
Rockport, 2%
Reebok - CCM
Hockey, 1%
The adidas brand portfolio is broken down as follows.
1) adidas – encompasses Sports Performance (football, basketball, running,
training and outdoor), Sports Style (Y-3, Porsche Design Sport, SLVR and
adidas NEO which is now a c.€600m brand with a target of €1bn by 2015.
2) Reebok – currently being rebranded as the Fitness brand.
3) TMAG – the global leader in golf apparel, the second-largest player in
Footwear (volume and value).
4) Brands include TaylorMade (metal woods, irons, accessories, apparel and
footwear), adidas Golf (footwear and apparel), Ashworth (more traditional
golfing apparel) and Adams Golf (acquired in 2012 and aimed at the less
traditional golfing demographic and charged with bringing its best selling
hybrid golf club technology to the TMAG brand portfolio.
5) Rockport – a lifestyle-orientated brand (apparel and footwear) with
advanced proprietary athletic footwear technologies built into footwear
collections.
27
Sporting Goods
6) Reebok-CCM Hockey – comprising performance-related products
designed to improve the playing experience for both professional and
recreational players.
In our view, the adidas group brand portfolio is well diversified across product
categories and materially represented in key segments such as football (number 1
market share), basketball (number 2), running and athletic kit (number 2 and 1
respectively) and golf through the TMAG brand portfolio.
While adidas’s Performance products tend to garner lower gross margins – we
estimate c.35% to 45% compared with its Lifestyle products at c.55% to 65%
(performance stores tend to take c.24 months to break even).
We believe it is crucial for sporting goods companies to continue to invest in
research and development and the marketing of performance products, thereby
creating a credible brand platform from which to launch more profitable lifestyle
brand collections. As an example, we track the historical relationship between
adidas brand sales, gross margin and mix between its Performance and Lifestyle
products.
adidas brand sales (€m) and growth (%) – FY03-12
12,000
+15.9%
10,000
+13.3% +13.1%
+7.3%
8,000
6,000
+13.2%
+15.0%
+10.0% -3.8%
-3.0% +4.5%
4,000
2,000
0
FY03
FY04
FY05
FY06
FY07
adidas brand
FY08
FY09
FY10
FY11
FY12
chg.
adidas brand sales (€m) and gross margin (%) – FY08-12
11,344
12,000
9,867
10,000
8,000
6,000
7,821
48.6%
7,520
47.1%
48.5%
48.0%
8,174
47.1%
47.2%
47.5%
47.0%
46.1%
46.5%
4,000
46.0%
45.5%
2,000
0
49.0%
45.0%
FY08
FY09
FY10
adidas brand sales, €m
FY11
FY12
44.5%
gross margin
28
Sporting Goods
adidas brand split between Performance and Lifestyle – FY09-12
100%
80%
60%
40%
20%
0%
6%
15%
7%
16%
8%
16%
17%
16%
18%
19%
20%
63%
59%
57%
55%
FY09
FY10
FY11
FY12
9%
adidas Sport Performance wholesale
adidas Sport Style wholesale
adidas Sport Performance retail
adidas Sport Style retail
Optically, the 610bp reduction of adidas Performance (wholesale and retail
combined) to 71.8% (FY09 to FY12) may appear to have done little for the
evolution of the adidas brand gross margin.
However, we believe that the underlying evolution is much stronger as the gross
margin factors multiple moving parts such as raw material/commodity/FOB costs,
currency hedges, labour costs, price/mix and markdown.
For example, we estimate that the 140bp reduction of adidas Performance
products as a percentage of sales versus Lifestyle products in FY12 played a major
role in driving up the adidas brand gross margin by 100bp yoy to 47.1% (+20bp to
47.7% at a group level).
In our view, the price/mix improvement was a key driver and more than offset
Group gross margin headwinds of 380bp in FY12 (raw material cost inflation,
labour costs and currency).
We assume that the bulk of these headwinds would have flowed through to the
adidas brand (76% of FY12 group sales), hence above-group gross margin
evolution by the adidas brand is impressive and part of the adidas strategy of
improving the mix between its Performance and Lifestyle product assortments as a
percentage of sales.
We forecast the adidas brand as a percentage of group sales to increase by 130bp
to FY15 (77.5%) with growth in the Performance retail category over Wholesale
leading to further gross margin/mix improvements.
29
Sporting Goods
adidas brand split between Performance and Lifestyle – FY09-12 and FY15E
100%
80%
60%
40%
20%
0%
6%
15%
7%
16%
8%
16%
9%
10%
17%
16%
20%
18%
19%
20%
18%
63%
59%
57%
55%
52%
FY09
FY10
FY11
FY12
FY15E
adidas divisions, brands and target sporting goods markets
Division
Key brands
adidas
Targeted markets
Football, basketball, running,
training, outdoor
adidas Originals
adidas Sport Style
adidas
Y-3, Porsche Design Sport, adidas
SLVR
Street-wear and lifestyle fashion
Street-wear and lifestyle fashion via a
multi-brand strategy
By comparison, Puma Group’s brand portfolio is limited to three recognised
brands; Puma, Cobra Golf and Tretorn. We estimate that Puma accounts for
c.95% of Puma total sales, and at the group level, we understand that Performance
accounts for 35% of total sales with Lifestyle at c.65%.
Puma Perf. vs. Lifestyle (FY12E)
Perf., 35%
Performance
Perf., 40%
Lifestyle ,
60%
Lifestyle ,
65%
Lifestyle
Performance
Lifestyle
Source: Berenberg Bank estimates
According to Puma management, 2013 will be a “pioneering” year with an
increased focus on Performance innovation, resulting in a c.500bp increase in
Performance-related product to 40% by FY15 (compares with our estimated
Performance versus Lifestyle FY15 adidas brand split of 71.8% to 28.2% (up from
22% as of FY09). Puma has in the past focused on its credentials as a sustainable
and fashion orientated brand, so the increased focus on Performance will be
interesting in terms of implied incremental costs associated with research,
development, advertising and promotion.
30
Sporting Goods
We dedicate a chapter to innovation later in the note where we compare the adidas
group’s and Puma’s leading innovation and the impact we expect this leading
innovation to have on both the top and bottom line.
adidas channel mix (FY12)
Wholesale,
64%
Other
Businesses,
13%
Retail,
23%
adidas channel mix (FY15E)
Wholesale,
60%
Other
Businesses,
14%
Retail,
26%
In our view, the adidas group ought to exceed its 2015 EBIT margin target of 11%.
Through combined initiatives such as increased retail sales penetration versus
wholesale, improved price/mix, best-in-class innovation and strong working capital
management on the back of sourcing, supply and distribution efficiencies, we see
upside risk to both the gross margin (we forecast that the group gross margin will
increase by 290bp by 2015 to 50.6% compared with the FY12 group gross margin
of 47.7%) and EBIT margin targets.
As a result, our FY15 group EBIT margin estimate of 11.9% is 90bp ahead of
management’s internal target.
such as Cambodia and Vietnam, where the cost of labour is lower relative to
China.
While we believe FY13 will remain a transitional year for adidas, we expect the
group gross margin to improve above management’s guided range of 48.0% to
48.5%. We expect short-term opportunities (soft comparison base and lower raw
material costs) to increase Reebok’s gross margin (following the India write-down
of FY12), supported by ongoing benefits of a greater retail presence versus
wholesale, improved sales and regional mix.
As a result, we expect the FY13 adidas group gross margin to increase by 150bp
yoy to 49.2%.
31
Sporting Goods
adidas management FY13 guidance vs. Berenberg estimates (currency neutral)
adidas group
Wholesale
Retail segment
Other businesses
Rockport
Reebok-CCM hockey
Outlook 2013
increase at low single-digit sales %
increase at high single-digit to low doubledigit %
increase at mid- to high single-digit sales %
increase at low double-digit sales %
Gross margin
Operating margin
48% to 48.5%
approaching 9%
Capital expenditure
Gross borrowings
€500m-550m
further reduction
EPS
Shareholder value
further increase
Berenberg FY13E
5.0%
3.0%
11.0%
4.4%
3.0%
3.0%
1.9%
49.2%
9.3%
In line
€525m
net cash €864m
-0.50x
€ 4.72
DPS +25% to
€1.68
Source: Berenberg estimates, company
We also expect Puma to benefit from an improved Retail mix – from 19.1% of
group sales in FY12 to 23% by FY15. However, we acknowledge there are
mitigating risks such as ongoing market share losses in footwear and apparel,
increased costs related to new marketing campaigns coupled with up front
investments in IT, sourcing, supply and distribution, which may weigh on shortterm profitability.
Puma channel mix (FY12)
Puma channel mix (FY15E)
Retail,
23.0%
Retail,
19%
Wholesale,
81%
Wholesale,
77.0%
32
Sporting Goods
Puma – investment route to 2015: attack or defend?
Puma launched its five-year “Back on the attack” strategy in October 2010. The
initial aims were to:
• achieve €4bn of turnover by 2015;
• reclaim historical (higher) EBIT margins (14-15%);
• sustainably improve shareholder value; and
• achieve all these goals while respecting environmental and social issues
such as Puma’s ambition to take leather out of its footwear offering and
become the #1 brand in terms of sustainability recognition.
In the table below, we highlight management’s estimated impact on the
distribution mix from 2010 to 2015.
Proposed impact on Puma’s business mix
Sales
PUMA brand
Non-PUMA brands
2010
96%
4%
2015 target
92%
8%
Accessories
Apparel
Footwear
14%
34%
52%
15%
35%
50%
APAC
Americas
EMEA
23%
32%
45%
23%
27%
50%
Top 6 Emerging
Rest of World
Top 6 Mature
14%
36%
50%
22%
40%
38%
Regional categories
Core categories
95%
5%
90%
10%
Retail & E-commerce
Wholesale
17%
83%
20%
80%
Source: Berenberg estimates, Company data
Former CEO Franz Koch, who left Puma in March 2013, previously outlined six
core strategies for the business, which we believe will remain a key focus for Puma
under new CEO Bjorn Gulden (whose appointment was announced on 18 April).
Mr Gulden was previously CEO of mid-end jewellery business Pandora and prior
to this role, he was managing director of Europe’s largest footwear retailer,
Deichmann (2000 to 2011), where he also headed the US subsidiaries Rack Room
Shoes and Off Broadway Shoes as CEO and president. Prior to his roles at
Deichmann, Gulden held posts at sporting goods retailers Helly Hansen and at the
adidas group.)
We note that Kering Group owns 82.4% of Puma. To date, Kering has yet to
exercise its option of taking full control of Puma’s balance sheet. In FY12, Puma
recorded €249m of net cash and announced a 75% dividend cut to €0.50.
The dividend cut reflected the decline in earnings (FY12: €4.69), including special
items of €177.5m versus €15.36 FY11 earnings) on the back of additional costs
associated with closing down stores and buying back licences in southern Europe
(Spain).
33
Sporting Goods
However, a pay-out ratio of 10.7% is low compared with adidas’s at 35.7% (10-year
average: c.24%) and as a result, we can envisage a scenario whereby Kering
acquires the minority free-float stake in order to take full control of Puma’s balance
sheet without having to communicate with minority shareholders. Puma
management maintains that the cash is required in order to fund its subsidiary
operations in key overseas markets.
We outline our three-year sales CAGR (FY12-15E) assumptions and five-year sales
CAGR assumptions relative to management’s official target of reaching €4bn of
turnover by 2015. Our analysis suggests that Puma will fall short of its FY15 target
by €388m as we forecast FY15 revenues of €3,612m.
Berenberg estimated sales to FY15 and implied three and five year CAGR rates
Sales
PUMA brand
Non-PUMA
brands
FY10
2,706
2,598
FY11
3,009
FY12
3,271
FY15E
3,612
3,323
12-15E
3-year
CAGR
3.4%
10-15E
5-year
CAGR
5.9%
5.0%
108
289
21.7%
Accessories
Apparel
Footwear
340
941
1,425
656
1,239
1,717
14.0%
5.6%
3.8%
APAC
Americas
EMEA
629
856
1,222
1,017
1,209
1,387
10.1%
7.2%
2.6%
Top 6 Emerging
Rest of World
Top 6 Mature
379
974
1,353
795
1,445
1,373
16.0%
8.2%
0.3%
Regional categories
Core categories
2,571
135
3,251
361
4.8%
21.7%
Retail & Ecommerce
Wholesale
460
2,246
722
2,890
9.4%
5.2%
We are more cautious compared with management’s 2015 official targets. Weakerthan-expected trading, as of Q3 2012 (reported sales growth of 6% to €892m
(+0.5% on a currency neutral basis), EBIT decline of 17% to €99m and a gross
margin miss of 180bp to 48.2%) resulted in a more cautious tone by management
and the announcement of the transformation and cost reduction plan.
Following a weaker-than-expected Q3 2012 trading update, which included special
items (write-downs of €80m associated with the rationalisation of loss-making
stores and the restructuring of the Greece, Cyprus and Bulgaria businesses),
management outlined a more rational strategy in order to address short-term profit
preservation over long-term targets.
We note that Q3 2012 special items were followed by an incremental €98.2m of
special items in Q4 2012 associated with ongoing restructuring in Europe and
Spanish arbitration costs. The expenses (90% cash, 10% non-cash items) will be
amortised over a period of two to three years while the pay-back of the costcutting programme is expected to take two to three years.
34
Sporting Goods
In our view, management’s official sales targets are unrealistic and are likely to be
revised lower in light of a net 50 store closure programme, a cut back in marketing
and team sponsorship and our expectation of future market share losses (footwear
and apparel) in 2013. We do not rule out the possibility of acquisitions to grow the
company’s non-Puma brands top line, but at this stage we believe acquisitions are
off the table.
Puma management official sales targets and implied CAGR rates
Sales
PUMA brand
Non-PUMA
brands
FY10
2,706
2,598
FY11
3,009
FY12
3,271
FY15E
4,000
3,680
12-15E
3-year
CAGR
6.9%
10-15E
5-year
CAGR
8.1%
7.2%
108
320
24.2%
Accessories
Apparel
Footwear
340
941
1,425
600
1,400
2,000
12.0%
8.3%
7.0%
APAC
Americas
EMEA
629
856
1,222
920
1,080
2,000
7.9%
4.8%
10.4%
Top 6 Emerging
Rest of World
Top 6 Mature
379
974
1,353
880
1,600
1,520
18.4%
10.4%
2.4%
Regional
categories
Core categories
2,571
135
3,600
400
7.0%
24.2%
Retail & Ecommerce
Wholesale
460
2,246
800
3,200
11.7%
7.3%
As a result of poor operational and trading performances last year, former CEO
Franz Koch outlined a transformation and cost reduction programme aimed at
driving up short-term profitability and returns for shareholders, to include the
following.
• The establishment of a new regional business model including the
reduction of European organisational entities from 23 to seven in
order to reduce the complexity of the business: Each area has a full
management team and P&L responsibility, while each country will focus its
activities on the commercial side of the business. The seven areas are the
DACH region (Germany, Austria and Switzerland), Iberia (Spain and
Portugal), UKIB (Belgium, Ireland, Luxembourg, the Netherlands and the
UK), the Nordics (Denmark, Finland, Norway and Sweden), Eastern
Europe (the Czech Republic, Estonia, Hungary, Lithuania, Poland and
Slovakia), France and Italy;
• The implementation of a warehouse rationalisation programme in
Europe: This is currently under way and will lead to cost savings in FY13
and FY14;
• The optimisation of the retail portfolio: This initiative will focus Puma’s
attention on closing c.90 unprofitable stores in Europe and North America
35
Sporting Goods
with a primary store opening strategy in emerging markets. By the end of
2013, management expects to operate out of 540 stores worldwide
compared with 590 as of FY12;
• The termination of collaboration and endorsement contracts: This is
also designed to drive up short-term profitability as Puma divests
“unprofitable” collaborations and endorsement contracts (the
discontinuation of Rugby in the Northern Hemisphere (IFRU) and sailing,
which is to be terminated in December 2013 with the discontinuation of the
Volvo Ocean race);
• The reduction of Puma’s product palette by 30% by the end of 2015:
The bulk of the rationalisation is expected to come from streamlining
regional and local ranges of which the first effects are expected to be visible
by spring/summer 2013 and;
• The future establishment of the international organisation around
seven business units: 1) teamsport, 2) running, training, fitness) 3) golf, 4)
fundamentals, 5) motorsport, 6) lifestyle (accessories) and 7) licensing.
Product management, design, development and product specific marketing
will be clustered under each business unit.
Puma gross margin evolution (FY02-15E)
54%
52%
50%
48%
46%
51.9% 52.3%
44%
48.7%
50.6%
52.3% 51.8%
50.8%
49.7% 49.6%
42%
40%
38%
48.3% 48.2% 48.4% 48.6%
43.7%
FY02
FY04
FY06
FY08
FY10
FY12
FY14E
According to our model, we forecast that the FY13 gross margin will decline by
10bp yoy to 48.2% in spite of lower raw material costs and a soft gross margin
comparison base (-130bp in FY12 to 48.3% and -10bp in FY11 to 49.6%). We
note that Puma is hedged at 1.28 (euro/dollar) in 2013 compared with 2012 at 1.36
(negative).
36
Sporting Goods
Puma adjusted EBIT margin evolution (FY02-15E)
25%
20%
15%
20.7%
10%
5%
0%
23.5% 22.4%
15.5% 15.7%
13.7%
FY02
FY04
FY06
13.9%
FY08
12.2% 12.5% 11.1%
FY10
8.9%
9.3% 10.0% 10.5%
FY12
FY14E
On a currency-neutral basis, Puma’s group sales comparison base looks relatively
soft, reflecting the past few years of market share losses and under-performance
relative to competitors; adidas and Nike.
Puma currency-neutral sales (FY02-12)
Puma category (FX neutral) sales (FY02-12)
60%
80%
70%
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
50%
40%
30%
20%
10%
0%
-10%
FY02
FY04
FY06
FY08
FY10
FY12
FY06
FY07
Footwear
FY08
FY09
Apparel
FY10
FY11
FY12
Accessories
However, we are not convinced that the short-term profitability focus, while
positive for shareholder returns in 2013, will result in a step to building a stronger
sales platform for the future. We view the transformation and cost reduction
programme as a necessary step for a business which historically has not been adept
at internal restructuring or the implementation of value-added IT, systems and
logistics.
Instead, in our view, Puma has relied upon historical relationships and an
antiquated and inefficient order book operating model, now running to four
seasons as opposed to two seasons, with the second and fourth quarters usually the
heavier discount-driven quarters.
Therefore, while Puma is taking the necessary steps to bring its operating structure
into the 21st century, we expect the larger/dominant sporting goods players to take
incremental market share. As a result, and as highlighted in our market
share/growth model section, we expect Puma to underperform the market by up
to 170bp in 2013.
37
Sporting Goods
In our view, the core strategic elements to Puma’s future success are predicated
around the sound execution of the following strategies:
• the implementation of sound product innovation and realisation of
product desirability;
• successful distribution, inventory management, SKU analysis (sell-out
and margin analysis);
• increased brand marketing “heat”;
• a strong management team and;
• a fundamental understanding of what the key regional and demographic
product focuses are over the mid- to long term.
Innovation
Management recognises that Puma needs higher levels of Performance-productrelated innovation in order to step up the “brand heat” among its main
competitors. Internal expectations are for the first signs of additional investment to
come through by spring/summer 2013.
Puma’s consistent messaging around being the most sustainable sporting goods
retailer and through its InCycle collection, which will be completely bio-degradable
and recyclable, will come at a price.
The time and the cost associated with manufacturing clothing which is fully biodegradable relative to the traditional manufacturing standards means that Puma
either has to invest gross margin into ensuring its products can compete on price
(we note that Puma’s collections will not have the same size and scale as adidas or
Nike).
Moreover, Puma’s target of ensuring that 50% of the Puma collection is to come
from sustainable products compared with 10% today is likely to weigh on margins.
Management believes that a 10-15% pricing premium versus peers may be feasible
in terms of elasticity of demand but at the same time acknowledges there is a
market share risk, cost/investment debate which is ongoing.
Puma InCycle collection – biodegradable and recyclable
38
Sporting Goods
Puma InCycle collection – biodegradable and recyclable
We believe that Puma’s brand heat levelled out a few years ago. Five or six years
ago, Puma was a much smaller brand and treated as more of an alternative niche
player in the marketplace. As the popularity of certain sporting segments
mushroomed (i.e. motorsport with Sparco footwear), so it has become harder for
Puma to drive the mass market into Puma brands.
We note that historical $10 input costs on a $140 motorsport shoe have increased
by more than 60% over the past five years, adding further pressure on the gross
margin.
New apparel designs such as the Bio-web or running shoes such as the EVO
Speed and PowerCat (expected to launch from Spring/Summer 2013 into
autumn/winter season in 2013) will test the market appetite for new Puma
products. In addition, the new Cell labelling system (including Visi Cell, Dry Cell
and Move Cell) ought to make it easier for consumers to identify with Puma new
collections and product innovation.
Distribution, IT and logistics investment
Management is in the process of implementing SAP, which was described by
management as relatively “low scale” at the moment. In our view, it will take at
least 18-24 months for Puma to understand and successfully implement SAP data
to its advantage in terms of inventory management and SKU margin and product
analysis. The implementation is in conjunction with the warehouse rationalisation
programme (from 23 facilities down to seven over the next few years) and
therefore is susceptible to execution risk during periods of restructuring.
We note that from FY06-10, Puma was occupied with the regional restructuring of
its BRIC businesses as well as focusing on its joint venture operations in Argentina,
Brazil, Russia and China. However, during this period, IT systems, sourcing and
supply chains were not vertically integrated.
During FY11-12, we believe that Puma started to take a lot of front-end-loaded
costs (SAP continues to be implemented across the key regions). We expect FY13
and FY14 will feature ongoing restructuring but at a reduced impact to the P&L.
Management is currently working on SKU management, supply chain and IT
systems upgrades, which is positive, yet we feel that the mindset within the
organisation needs to shift more towards becoming a vertically integrated player.
Step by step, vertical integration is starting to gain traction – Iberia is expected to
be fully integrated into one European platform in 2013 and the number of
39
Sporting Goods
warehouses will also be reduced from 23 to seven leading to job cuts, working
capital improvement and efficiencies.
The outgoing Klaus Bauer (ex-head of finance, legal, operations, logistics, IT and
human resources) told us during a one-on-one meeting that he expected Puma
sales to reach €6bn-8bn by 2020 – our FY17 sales estimate is €3.95bn, hence we
are sceptical around 2020 revenue generation of €6bn-8bn and would expect the
new management team to distance itself from any such kind of forecast, preferring
instead to focus on both front and back of house operations.
Target regions and demographics
Nike and adidas have size and scale advantages. Puma is not representative in
basketball due to the costly endorsements associated with the sport and is also
marginalised in American football.
The US is a key attack market for Puma along with Greater China and Russia –
which are identical attack markets for adidas and for Nike. We are not confident at
this point in time that Puma’s product and segmental offerings are material enough
to arrest market share declines.
We appreciate that new “Mobium” footwear (shoes which expand and contract
with heat and movement), “active and recover” tape (taping built into sporting
garments for additional muscular support) and new “Evo” and “Powercat”
footwear designs may help drive consumer interest, footfall and demand.
We forecast Puma Americas three-year sales CAGR of 2.4% compared with adidas
at 4.3%. We expect both Puma and adidas to record stronger three-year sales
CAGR rates in Greater China at 6.5% and 8.7% respectively. We believe that
European market growth will remain more subdued for Puma (a +2.1% three-year
sales CAGR) versus adidas’s Western European three-year sales CAGR estimate of
4.3% (eastern European markets at 7.0%).
Puma’s Greater Chinese growth profile has disappointed historically, with FY09
and FY10 Asia-Pacific sales down by 7.7% and 2.6% respectively. Recently, trading
has improved but we are mindful of the local landscape. Chinese sporting goods
player Li Ning posted an FY12 net loss of CNY1.98bn ($318.8m) for the first time
since its IPO in 2004. Li Ning cited wholesale operational weakness as the key
underperforming factor. We note that large amounts of stock have been built up in
the channel not only by Li Ning but also Anta Sports. Expectations are for local
conditions to remain challenging.
Nike reported Q3 2013 trading results on 22 March with Chinese sales down by
10% (FX-adjusted). By contrast, North American sales increased by 18% yoy, the
eighth consecutive quarter of double-digit sales growth while group gross margin
increased by 30bp to 44.2%, ahead of expectations. Nike stated that it expects the
cleaning of excess inventory in China and subsequent product repositioning to take
several quarters and, as a result, it expects to post relative sales weakness over the
next few quarters, although we note Greater Chinese future orders increased by
3% on an adjusted currency basis.
By contrast, adidas’s FY12 Greater China sales increased by 15% on a currencyneutral basis and we maintain that Nike and adidas will continue to take global
market share due to a strong innovation pipeline, creative marketing and assisted
by capacity withdrawal by local players in key regions such as China (for example,
Li Ning and Peak Sports continue to cut back on their store numbers).
We expect Puma to continue to focus on top wholesale accounts such as
Intersport, Decathlon, Centarion, Dicks Sporting Goods, Nordstrom and
40
Sporting Goods
Footlocker and avoid distribution through discount retailers such as K-Mart and
Walmart in the US and Mexico.
Nike 2015 strategy
Nike expects to generate:
• high single-digit revenue growth (average annual rate);
• mid-teens earnings-per-share growth (average annual rate);
• return on invested capital of 25% and;
• an increase in dividends, within a target calendar year pay-out range of
25-35%.
Nike reiterated its goal of reaching $28bn-30bn of sales by 2015 during its Q3 2013
earnings call in March. Assuming Nike reaches the mid-point at $29bn, this would
imply a three-year sales CAGR (FY12-15E) of 6.3%, a higher growth rate
compared with adidas at just over 5% and consistent with our market model
assumptions, where we expect adidas and Nike to take the most incremental
market share to FY15 (560bp and 960bp respectively).
41
Sporting Goods
Margin and costs metrics
We compare adidas’s, Puma’s and Nike’s COGS as a percentage of sales, and
operating expenses (excluding depreciation) as a percentage of sales, EBIT and
gross profit historical profiles in order to highlight relative deltas and/or future
cost-saving opportunities.
adidas, Puma and Nike COGS as a percentage of sales (CY03-12)
65%
60%
55%
50%
45%
40%
CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12
Puma
adidas
Nike
Source: Company data, Berenberg estimates, Bloomberg consensus
adidas has historically a higher COGS base compared with Puma. As raw material
(65% of COGS) prices fall, we expect COGS pressure to ease. We estimate that
sporting goods companies could benefit by 50bp to 150bp on lower raw material
costs in 2013 (for adidas, no single raw material accounts for more than 5% of
COGS).
The net impact to gross margin is likely to be lower assuming global consumption
for sporting goods cools on weaker consumer confidence and increased cost of
living. We forecast adidas COGS as a percentage of sales to decline by 150bp yoy
to 50.8% versus flat COGS as a percentage of sales for Puma in FY13. As Puma
continues to increase the percentage of products sold made out of sustainable raw
materials (from c.10% to 50% by FY15), sourcing costs will continue to rise at a
disproportionately higher rate. Both companies suffer from adverse FY13 hedging.
Adidas’s, Puma’s and Nike’s opex as a percentage of sales (CY03-12E*)
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12
Puma
adidas
Nike
Source: Company data, Berenberg estimates, *Bloomberg consensus (FY13 Nike)
42
Sporting Goods
Operating expenses as a percentage of sales evolution for adidas and Puma versus
Nike highlight a significant operating leverage opportunity for both European
sporting goods companies.
Within the sporting goods sector, we have noted inefficiencies linked with some of
the largest companies as regards warehouse capacity management, order taking and
distribution – part of this, we believe was due to the legacy “order book” model
whereby sporting goods companies would look to fill almost an entirely wholesale
order book by up to 70-80% in advance and work on the basis of releasing two
global collections a year (in summer and winter).
This rather simplified model resulted in an initial lack of sourcing and supply chain
investment. Sporting goods manufacturers were regularly caught out with holding
too much or too little stock as the more reactive wholesale market to global macroeconomic shocks/downturns and upturns would decrease and increase its order
books accordingly. As a result, sporting goods manufacturers/retailers would
suffer from volatile swings in cash flow and gross margin subject global demand
trends.
Furthermore, as sporting goods players such as adidas, Nike and Puma have
expanded their brand footprint (for example in Asia), they have had to increase the
number of collections launched per annum (to four) and contend with local
sporting goods players such as Li-Ning and Anta, which are not only subject to
intense/competitive pricing strategies but are susceptible to over-stocking the
channel with out-of-date stock resulting in price/demand elasticity, weaker
consumption, incremental markdown and, as a consequence, gross margin erosion.
As part of the strategic investments adidas, Nike and Puma are taking to 2015, we
believe that all three companies have varying opportunities to rationalise
distribution capacity, reduce costs and improve working capital.
Both adidas and Puma are currently running major distribution centre
rationalisation projects, which at first hand increase execution risk and double
running costs but ultimately ought to result in material cost savings and working
capital improvements.
Our model assumes that adidas operating expenses as a percentage sales (excluding
depreciation) increases by 10bp in FY13 to 39.6% (+20bp to 41.5% including
depreciation) as FY13 represents a transitional year, with ongoing warehouse
investments in Germany and Russia, for example.
We note that adidas management believes it is “half-way” there in terms of
reaching its 2015 infrastructure targets – adidas shipped 244m pairs of shoes, 314m
units of apparel and 51m units of hardware in FY12, so the distribution base is
robust enough to deal with global demand. We expect a new NEO supply chain
management system to be implemented in FY13 with a major SAP upgrade in
Russia. e-commerce will also be consolidated on a global basis with one IT
platform and one IT solution.
As for Puma, we have taken a more radical approach to costs as management
implements its transformation and cost reduction programme. As a result, we look
for a 600bp improvement to 37.3% (excluding depreciation and 39.4% including
depreciation), more in line with FY10 (36.6%) and FY11 (37.0%) levels as opposed
to FY12 (43.3%).
By comparison, Nike recorded CY11 operating expenses as a percentage of sales
of 30.9% (adidas 39.9% and Puma 37.0%) highlighting Nike’s superior operating
efficiency and future cost opportunities for both adidas group and Puma.
43
Sporting Goods
adidas and Puma gross margin (CY03-15E)
54.0%
52.0%
50.0%
48.0%
46.0%
44.0%
42.0%
40.0%
CY03
CY05
CY07
Puma
CY09
CY11
CY13E
CY15E
adidas
We expect the adidas group’s FY13 EBIT margin to match Puma’s at 9.3%.
adidas’s management has set a 2013 group EBIT margin target “approaching 9%”.
We anticipate costs savings within distribution and sourcing – lower commodity
costs (netted off by adverse currency hedges and a structural increase in Asian
labour costs), improved price/mix within the adidas brand and increased retail
versus wholesale: hence our FY13E adidas group gross margin of 49.2% compared
with Puma at 48.2%.
Moreover, we expect the leverage to be second-half-weighted - Reebok terminated
the NFL contract in Q1 2012 and the sales comparison eases into the second half
of the year (following the London Olympics). We expect Reebok to deliver an
increase in gross margin in FY13 having been adversely affected by operating
irregularities in India during 2012.
adidas’s and Puma’s EBIT margin (CY03-15E)
25%
20%
15%
10%
5%
0%
CY03
CY05
CY07
Puma
CY09
CY11
CY13E
CY15E
adidas
Risks to our EBIT margin estimates include more-costly-than-expected
investments in distribution, sourcing and IT, coupled with weaker-than-expected
global sporting goods demand.
44
Sporting Goods
Innovation is essential “skin in the game”
We believe that the outcome of higher levels of R&D-related investment in
innovation translates into incremental gross margin for global sporting goods
companies.
Successful new product innovations not only improve the product mix and
engender higher levels of brand loyalty, they are also a critical function of the
business model (inextricably linked to marketing spend), which is designed to
increase market share and drive the top line.
In our view, cost savings tend to be found through leveraging distribution and
manufacturing size and scale. We conclude that those players which are able to
allocate a higher level of investment in areas such as marketing and research and
development ought to increase global sporting goods market shares relative to
peers as the global demographic becomes more exposed to its product base and
potentially more loyal/aligned with its sporting brand equity, which includes a
heightened affiliation with respective sporting icons. The multi-million dollar key is
to design category “killers”, new design and technology that make a difference to
the way sportsmen and women perform, feel and look.
adidas’s product development, design and innovation
adidas takes a decentralised approach to research and design across its brands.
However, whenever fundamental research and expertise competencies can be
shared across the group, they are done so. Each brand runs its own research and
development activities (category or technology focus) and roughly 2% of the
workforce is employed in this area:
1) adidas focuses on performance footwear, apparel and hardware
innovation;
2) Reebok focuses on footwear, apparel and hardware with a primary
emphasis on fitness;
3) Rockport focuses on advanced proprietary athletic footwear technologies
incorporated into its shoe/lifestyle collections;
4) TMAG focuses on different product categories in the golfing segment;
and
5) Reebok-CCM Hockey focuses on the creation of hockey equipment
designed to improve the experience for both professional and recreational
players.
Extensive virtual proto-type testing and engineering takes place in order to reduce
physical material and resource requirements. Physical samples are tested by a broad
range of users including top athletes.
For example, top marathon runners recently tested the new BOOST shoe
technology (designed and manufactured in partnership with BASF) during the
Tokyo marathon – the top three finishers were wearing BOOST having tested it
the day before and the winner set a new course record.
We highlight below adidas group marketing and R&D costs as a percentage of
sales. Typically, both R&D and marketing costs are front-end-loaded and ramp
ahead of major sporting events such as the UEFA Euro 2004 football
championships or the London Olympics and UEFA Euro 2012 football
championships.
45
Sporting Goods
adidas group marketing and R&D costs as a percentage of sales (FY01-FY12)
18.0%
1.6%
17.0%
1.4%
16.0%
1.2%
15.0%
1.0%
14.0%
0.8%
13.0%
0.6%
12.0%
0.4%
11.0%
0.2%
10.0%
0.0%
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12
Marketing costs
R&D costs
Our proprietary analysis compares each brand sales performance against the
number of new “major” product innovations from FY07-12 on a group-wide basis
and also by brand. Clearly the ramp up for adidas group major product launches
occurred ahead of major sporting events in 2012 (the London Olympics and the
UEFA Euro 2012 football championships), so while the number of major product
launches declined in FY12, the adidas group was still able to capitalise in terms of
top-line growth.
adidas group avg. sales per major product launch
Number of major product launches vs. sales
400.0
16,000
350.0
14,000
300.0
12,000
50
40
10,000
250.0
8,000
200.0
30
6,000
150.0
20
4,000
100.0
2,000
50.0
0
0.0
60
FY07
FY08
FY09
FY10
FY11
10
FY07
FY08
Sales
FY12
FY09
FY10
FY11
FY12
0
Major product launches
Source: Berenberg Bank estimates, Company data
We highlight innovation across adidas group in terms of number of new major
launches by brand and as percentage of total innovation.
Innovation at adidas (major launches – absolute)
20
18
16
14
12
10
8
6
4
2
0
Adidas group brands % of total innovations
50%
45%
adidas brand
adidas brand
40%
TMaG
35%
TMaG
30%
25%
Reebok
Reebok
20%
CCM-Hockey
15%
CCM-Hockey
10%
Rockport
FY07
FY08
FY09
FY10
Rockport
5%
FY11
FY12
0%
FY07
FY08
FY09
FY10
FY11
FY12
46
Sporting Goods
Our analysis compares brand trend lines as a percentage of total innovations.
Reebok and TMAG total innovations appear to be more cyclical versus the adidas
brand, which has to maintain a more constant level of innovation. In terms of the
number of major product launches, both the adidas brand and TMAG invested
heavily in 2010 and 2011 with record numbers of new major product launches.
We acknowledge that it is not all about quantity of new product launches as
additional time taken in order to innovate at a higher/category killer level is often,
over the mid- to long term, more beneficial to both brand equity, sales and the
bottom line. However, we also appreciate that sporting goods companies offer
products which are aimed towards both the performance and lifestyle markets.
adidas brand products weighted by shelf-life
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
FY07
FY08
FY09
FY10
FY11
< 12 months old
1-3 year-old
> 3 years-old
FY12
adidas brand sales vs. major product launches
20
18
16
14
12
10
8
6
4
2
0
20
18
16
14
12
10
8
6
4
2
0
12000
10000
8000
6000
4000
2000
FY07
FY08
FY09
FY10
Sales at adidas
FY11
FY12
0
adidas brand average sales (€m) per major product launch
700
600
500
400
300
200
100
0
FY07
FY08
FY09
FY10
FY11
FY12
Reebok brand products weighted by shelf-life
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Reebok brand sales vs. major product launches
12
10
8
6
4
2
FY07
FY08
FY09
FY10
FY11
< 12 months old
1-3 year-old
> 3 years-old
FY12
0
2500
12
2000
10
8
1500
6
1000
4
500
0
2
FY07
FY08
Sales
FY09
FY10
FY11
FY12
0
47
Sporting Goods
Reebok had a much smaller number of products which were less than 12 months
old compared with the adidas brand in FY12 (78% versus 67% respectively,
according to our analysis). However, the five-year trend delta has been wider
(FY07: Reebok 61% versus the adidas brand at 77%).
As adidas group invests more into Reebok’s House of Fitness campaign and relaunches the brand in 2013, so we expect the delta to narrow between the two
brands.
In our view, the delta can only truly narrow when Reebok becomes more
profitable, as the gross margin difference between the adidas brand and Reebok is
substantial – according to our estimates, the adidas brand (Retail and Wholesale)
recorded a gross margin that was 1,120bp higher (at just over 47%) compared with
Reebok.
Reebok brand average sales (€m) per major product launch
250
200
150
100
50
0
FY07
FY08
FY09
FY10
FY11
FY12
Due to the recent RocketBallz metal woods phase two launch and Rocketbladez
irons, TMAG recorded its highest weighting of new products under 18 months old
since FY08 (FY12: 84%; FY08: 92%).
The innovation, testing and product cycle is typically longer for hardware and
technical/Performance footwear compared with Lifestyle and non-performance
apparel.
TMAG brand(s) products weighted by shelf-life
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
FY07
FY08
FY09
FY10
FY11
< 18 months old
1.5-3 year-old
> 3 years-old
FY12
TMAG brand(s) sales vs. major product launches
14
1600
14
12
1400
12
10
1200
1000
10
8
6
800
4
600
2
400
4
0
200
2
0
8
6
FY07
FY08
Sales
FY09
FY10
FY11
FY12
0
48
Sporting Goods
However, average sales recorded by new major launches was materially ahead of
FY08, which highlights a material shift in focus more towards a combination of
category defining innovation coupled with higher average selling prices per
new/major innovation.
TMAG brand(s) average sales (€m) per major product launch
160
140
120
100
80
60
40
20
0
FY07
FY08
FY09
FY10
FY11
FY12
Rockport brand products weighted by shelf-life
Rockport brand sales vs. major product launches
70%
3.5
350
3.5
60%
3
300
3
50%
2.5
250
2.5
40%
2
200
2
30%
1.5
150
1.5
20%
1
100
1
10%
0.5
0%
FY07
FY08
FY09
< 12 months old
FY10
FY11
FY12
0
50
0
0.5
FY07
FY08
Sales
FY09
FY10
FY11
FY12
0
Reebok-CCM products weighted by shelf-life
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Reebok-CCM sales vs. major product launches
6
300
6
5
250
5
4
200
4
150
3
100
2
50
1
3
2
1
FY07
FY08
FY09
FY10
FY11
< 12 months old
1-3 year-old
> 3 years-old
FY12
0
0
FY07
FY08
Sales
FY09
FY10
FY11
FY12
0
We highlight selected innovations range across product category, brands and
segments.
49
Sporting Goods
adidas group major/new innovations 2012-2013 ytd (selected examples)
Timing
Features
Segment
Oct-12
Lightweight and Flight Control
Technology increasing ball speed and
distance. Multiple performance
technologies. Optimum comibnation of
speed, forgiveness, playability and feel.
Equipment
adipure Running shoe
range
Q2-12
First natural running shoe collection,
consists of 3 shoes with varying heel
gradient for different levels of advancement
(adipure Motion, Gazelle, Adapt). Full
support with a polyurethane overlay. Socklike fit and dual-layer midsoles.
Footwear
truWalkZero footwear
Apr-12
Rockport's revolutionary footwear
colelction. Natural full range of motion and
stellar comfort. The lightest shoe Rockport
ever made.
Footwear
Jul-12
Collaboration between adidas and major
leadue soccer's 19 teams. Sport datatarcking technology permitting coaches and
Equipment
fans to track the athletes' hear rates, speed,
field position, power and other
performance metrics in real-time.
DryDye technology
(sustainable product
range)
Jul-12
The technology eliminates the need for
water in the dyeing process. Step to create
more environmentally benign products. A
whole range of sustainable products.
Apparel
D Rose 3.5
Mar-13
Imrpoved performance - faster cuts and
increased control. Designed to fit even
closer to the foot.
Footwear
Mar-13
New cushioning material developed with
cooperation with BASF. Highest energy
return to the runner. Soft and reponsive
cushioning.
Footwear
2013
The largest scope of adjustability of any
driver in brand's history. Seven face-angle
positions, two movable shot-shape
weights, twelve loft-sleeve setting
positions.
Equipment
2013
The most extreme foot speed. Player's
power enhanced. New custom-support
insoles, advanced SpeedCore composite
quarter package, SpeedBlade +4.0 holder.
Equipment
Innovation 2012-2013 YTD
Rocketbladez irons.
miCoach Elite System
Energy Boost
R1 driver
CCM RBZ skate
Comments
Growing popularity of
natural/minimalist running.
Sustainability. Normally takes 25 liters
of water to colour a shirt, here the ened
for water eliminated altogether.
One of the most revolutionary
innovations in footwear.
Puma product development, design and innovation
Under Puma’s brand and product transformation plan, Puma intends to design and
manufacture product with a clearer market positioning in Performance and
Lifestyle than in previous years, thereby recognising the mistakes of the past (with
so much product skewed towards Lifestyle, we estimate that Puma’s FY12
50
Sporting Goods
Performance product was c.35% of the total mix compared with c.72% for the
adidas group).
For the future, Puma will focus on two distinct brand platforms: 1) the nature of
Performance; and 2) Puma Social in the Lifestyle area. We understand that the
former executive board departments of Product and Marketing will be combined
into one executive department to ensure the close coordination of product and
marketing across the group. We believe this step will provide a complementary
organisational structure around the brand platforms.
Moreover, the former product divisions of Footwear, Apparel and Accessories are
to be integrated into the seven business units of team sports,
running/training/fitness, golf, fundamentals, motorsport, lifestyle, and accessories
and licences. We highlight Puma’s product development and design expense
evolution below and assess how this has changed as a percentage of sales from
FY06 to FY12. We carry out similar analysis for marketing/retail.
Puma product development and design expenses and as a percentage of sales
90
80
70
60
50
40
30
20
10
0
2.6%
2.6%
2.4%
2.4%
2.3%
2.4%
2.2%
57
58
55
58
64
FY 06
FY 07
FY 08
FY 09
FY 10
85
77
FY 11
FY 12
2.7%
2.6%
2.5%
2.4%
2.3%
2.2%
2.1%
2.0%
1.9%
Product development/design expenses (EUR m)
Product development/design expenses as % of sales
Puma product development and design expenses and as a percentage of sales
20.9%
600
500
20.5%
18.5%
18.3%
18.6%
18.9%
440
448
529
501
501
551
FY 06
FY 07
FY 08
FY 09
FY 10
FY 11
400
300
200
100
0
21.5%
21.0%
20.5%
20.0%
19.5%
19.0%
18.5%
18.0%
17.5%
17.0%
16.5%
Marketing/retail expenses (EUR m)
Marketing/retail expenses as % of sales
51
Sporting Goods
Puma group major/new innovations 2011-2013 ytd (selected examples)
Announcement Release
Innovation 2011-2013 YTD
Faasfoam
Technology
PowerCat 1.12
football boot
May-11
Oct-11
Features
Segment
Category
Products
2011 A/W
One of the lightest and most resilient foam sole
materials on the market, used in ultra-light
running shoes for performance athletes.
Footwear
Sports
performance:
Running
Faas 200, 250, 300, 350, 400, 500, 550,
800 and 900
Dec-11
Faeturing 3D DUO Power Shooting Technology,
unique shooting technology applied to the kicking
area on the inside of the boot. Made from an
innovative thermoplastic material. Does not
absorb energy upon ball impact but increases
kicking power.
Footwear
Sports
performance:
Football
PowerCat 1.12 football boot
Sports
Cross-category collection: "Light, flex and fit".
performance:
Lightweight materials, increased flexibility and an
Football,
Footwear & Apparel
optimised fit. Enhanced speed, freedom of
Motorsport, Golf,
movement without compromising support.
Running, Cricket,
Indoor
evoSPEED
collection
May-12
Jun-12
InCycle
collection
Oct-12
2013 S/S
Biodegradable and recyclable, allowing consumers
to return their products to stores for processing Footwear, Apparel
& Accessories
through PUMA's “Bring Me Back Programme”
once they’ve reached the end of their line.
Sportlifestyle
evoSPEED 1 FG, evoSPEED MID,
FAAS Trac evoSPEED, BOLT
evoSPEED Runner, evoSPEED
Cricket, evoSPEED Indoor 1
Recycable track jacket, Biodegradable
InCycle Basket (sneaker), Biodegradable
InCycle T-Shirt, Recycable InCycle
Backpack,
Nike product development, design and innovation
Nike’s product offerings are broken into seven key categories:
1) running;
2) basketball;
3) American football;
4) men’s training;
5) women’s training;
6) Nike sportswear; and
7) action sports.
Nike’s brand portfolio consists of:
1) Nike;
2) NikeGolf;
3) Jordan – the premium brand of athletic footwear, apparel and accessories;
4) Converse Inc – under the converse, All Star, One Star, Chuck Taylor, Star
Chevron and Jack Purcell trade marks; and
5) Hurley International – which designs a line of action sports and youth.
Nike divested the Umbro football brand for $225m to Iconix (October 2012) and
the Cole Haan design brands in November 2012 for $570m.
Nike has its own internal R&D facilities where staff specialise in biomechanics,
chemistry, exercise physiology, industrial design and other related fields. This
approach to R&D, design and innovation is in our view, slightly more extensive
than adidas’s, although adidas has similar investments in these categories.
In addition, both adidas and Nike work in joint partnership with chemical and
academic institutions in relation to new innovation and testing.
In our view, Puma falls short of this level of investment, product development,
design and innovation collaboration.
52
Sporting Goods
Nike’s most recent major innovations and activities include:
• the Nike fuelband – a digital device that tracks daily activities through a
sport-tested accelerometer;
• Flyknit technology – new footwear technology that uses advanced
materials and proprietary manufacturing technology to produce a formfilling, lightweight and seamless upper;
• Expand Nike + platform – enables tracking multiple activities with the
ability to compared results over time; and
• Uniforms – launch of new high performance uniforms for all 32 NFL
teams including the “lightest and most sustainable kits”.
Nike demand creation expenses growth
3,000.0
12.4%
2,500.0
2,000.0
12.3%
12.8%
12.4%
12.3%
11.7%
11.7%
11.2%
1,500.0
1,000.0
500.0
0.0
1,132
2,308
2,352
2,356
2,448
2,711
FY07
FY08
FY09
FY10
FY11
FY12
11.8%
11.3%
10.8%
10.3%
Demand creation expenses (USDm)
Demand creation expenses as % of sales
In the table, we compare adidas, Puma and Nike iconic brand/product pricing in
sterling. Adidas and Nike pricing appears comparable to one another relative to
Puma’s, which, based on our sample comparison, is considerably more expensive
with its football offering.
Moreover, we do not believe that Puma is currently able to compete with adidas
and Nike in terms of innovation within the running department when we compare
the Mobium product with the adidas brand’s BOOST shoe or Nike’s Flyknit Lunar
1+.
53
Sporting Goods
Iconic product pricing comparison sample (GBP)
adidas
Men's adizero F50
TRX FG Boots
GBP165
Puma
Men's PowerCat 1
SL FG Football
adidas
Bayern München
Home Jersey
GBP65
Puma
Men's BVB Replica
Home Jersey
adidas
Men's Energy Boost
Shoes
GBP110
Puma
Men's Mobium
Elite Running Shoes
GBP85
adidas
Men's Superstar 2
GBP62
Puma
Men's InCycle
Basket Trainers
GBP80
Puma
Women's FormLite
XT Sheen Trainers
GBP210
GBP50
Nike
Mercurial Vapor IX
CR FG
Nike
Paris Saint-Germain
Replica Short-
GBP160
GBP60
GBP140
GBP62
GBP80
Puma
-21.4%
Nike
+3.1%
Puma
+30.0%
Nike
+8.3%
adidas vs.
Puma
+29.4%
Nike
-21.4%
Puma
-4.6%
Nike
+0.0%
Puma
+45.5%
Nike
+0.0%
adidas
+27.3%
Nike
+31.3%
adidas
-23.1%
Nike
-16.7%
Puma vs.
adidas
-22.7%
Nike
-39.3%
adidas
+4.8%
Nike
+4.8%
adidas
-31.3%
Nike
-31.3%
Nike
Nike Flyknit Lunar
1+
GBP65
Reebok
Women's CrossFit
Nano 2.0
Nike
Nike Cheyenne
2013 vintage
GBP55
Nike
Nike Free TR Fit 3
Breathe
Source: Company websites, Berenberg estimates
54
Sporting Goods
Commodity cost pressure or relief?
Global sporting goods companies tend to hedge currency with limited hedging at
the raw material level (adidas pays suppliers a fixed cost for raw materials and
hedges the FOB/currency impact). We highlight commodity price movement in
local currency and against the euro, which is relevant for adidas and Puma.
We conclude that both adidas and Puma ought to see 50bp to 150bp of gross
margin gains realised in 2013 on the basis of a general depreciation in commodity
costs (in euro terms). We estimate that raw materials account for up to or slightly
above 65% of COGS, although no single raw material accounts for more than 5%
of COGS, which is why it is important to assess the average commodity price
change.
Commodity prices yoy changes in reported currencies (2005 to 2013 ytd)
Crude oil
Natural gas
PET
Pulp
Aluminium
Rubber
Caustic
Soda
Soda Ash
Cotton
HDPE
Ethylene
Average
Source: Datastream
2005
43.2%
51.3%
3.5%
-0.8%
10.7%
11.7%
2006
19.8%
-24.3%
6.9%
10.3%
35.1%
36.4%
2007
10.7%
3.1%
6.6%
17.7%
2.7%
-1.5%
2008
34.2%
27.4%
-0.1%
7.7%
-2.4%
9.4%
2009
-36.7%
-55.5%
-18.3%
-23.1%
-35.1%
-24.7%
2010
29.5%
10.8%
25.7%
41.6%
30.0%
94.8%
2011
39.6%
-8.7%
32.5%
3.3%
10.4%
27.3%
2012
0.4%
-31.0%
-14.3%
-15.3%
-15.8%
-23.5%
2013
-1.0%
31.5%
7.9%
1.4%
-2.4%
-11.6%
83.6%
-10.0%
17.6%
37.5%
23.4%
-4.0%
9.6%
2.6%
16.9%
-6.5%
10.9%
8.7%
4.4%
9.2%
21.1%
2.9%
8.3%
75.0%
22.4%
9.6%
5.6%
13.1%
18.9%
-41.8%
12.3%
-9.4%
-29.6%
-44.2%
-26.2%
-18.8%
-3.3%
67.2%
27.7%
66.6%
30.5%
46.8%
3.9%
50.7%
8.0%
24.8%
21.4%
3.2%
-7.8%
-43.8%
2.0%
1.9%
-14.6%
9.5%
-1.3%
6.9%
4.4%
9.7%
4.5%
Commodity prices yoy changes in € (2005 to 2013 ytd)
Crude oil
Natural gas
PET
Pulp
Aluminium
Rubber
Caustic
Soda
Soda Ash
Cotton
HDPE
Ethylene
Average
Source: Datastream
2005
43.2%
51.2%
3.5%
-0.8%
10.6%
11.7%
2006
18.7%
-25.0%
5.8%
9.2%
33.8%
35.1%
2007
1.5%
-5.5%
-2.2%
7.9%
-5.8%
-9.7%
2008
25.5%
19.2%
-6.6%
0.7%
-8.7%
2.3%
2009
-33.4%
-53.1%
-14.0%
-19.0%
-31.7%
-20.7%
2010
36.0%
16.4%
32.1%
48.7%
36.6%
104.6%
2011
32.9%
-13.1%
26.2%
-1.7%
5.1%
21.2%
2012
8.7%
-25.4%
-7.3%
-8.3%
-8.9%
-17.2%
YTD
-3.3%
28.4%
5.3%
-1.0%
-4.7%
-13.7%
83.6%
-10.0%
17.6%
37.5%
23.4%
-4.9%
8.6%
1.6%
15.8%
-7.4%
9.9%
-0.4%
-4.3%
0.1%
11.0%
-5.7%
-0.7%
63.6%
14.4%
2.5%
-1.2%
5.8%
11.2%
-38.7%
18.3%
-4.6%
-25.9%
-41.3%
-22.3%
-14.7%
1.5%
75.7%
34.1%
74.9%
37.1%
39.8%
-1.1%
43.5%
2.9%
18.8%
15.6%
11.7%
-0.2%
-39.2%
10.4%
10.3%
-7.6%
6.9%
-3.7%
4.4%
1.9%
7.1%
2.0%
The price movements in euro terms in 2012 on a collective basis read positively for
sporting goods companies’ implied COGS/gross margin for 2013. We accept that
structural headwinds such as Asian labour costs continue to increase and that for
western European consumers, wage deflation continues to prevail, which results in
more stringent household consumption behaviour.
We expect adidas and Nike to be the main beneficiaries of more benign
commodity prices compared with Puma. Puma continues to invest more heavily in
more costly sustainable raw materials, while at the same time it needs to invest
more in its Performance-related offering (Performance-related product offerings
55
Sporting Goods
take longer to research, design and develop and are more costly – for example, a
technical/performance football boot may comprise 80 to 90 components
compared with a lifestyle/fashion footwear product, which typically consists of 10
to 15 components.
Commodity costs in € (average prices) 2007 to 2013
Aluminium
Crude oil
HDPE
Natural gas
PET
Pulp
Average
2007
-5.8%
1.5%
11.0%
-5.5%
-2.2%
7.9%
1.1%
2008
-8.7%
25.5%
-1.2%
19.2%
-6.6%
0.7%
4.8%
2009
-31.7%
-33.4%
-25.9%
-53.1%
-14.0%
-19.0%
-29.5%
2010
36.6%
36.0%
34.1%
16.4%
32.1%
48.7%
34.0%
2011
5.1%
32.9%
2.9%
-13.1%
26.2%
-1.7%
8.7%
2012
-8.9%
8.7%
10.4%
-25.4%
-7.3%
-8.3%
-5.1%
YTD
-4.7%
-3.3%
1.9%
28.4%
5.3%
-1.0%
4.4%
Q1
2013E
-8.7%
-5.3%
4.5%
40.8%
1.7%
-1.9%
5.2%
Caustic Soda*
Rubber*
Cotton*
Soda Ash*
Average 2*
-0.4%
-9.7%
0.1%
-4.3%
-3.6%
63.6%
2.3%
2.5%
14.4%
20.7%
-38.7%
-20.7%
-4.6%
18.3%
-11.5%
-14.7%
104.6%
75.7%
1.5%
41.8%
39.8%
21.2%
43.5%
-1.1%
25.9%
11.7%
-17.2%
-39.2%
-0.2%
-11.2%
6.9%
-13.7%
4.4%
-3.7%
-1.5%
4.5%
-19.8%
-10.1%
-5.7%
-7.8%
Total
average
-0.7%
11.2%
-22.3%
37.1%
15.6%
-7.6%
2.0%
0.0%
Source: Datastream
Relevant raw material price movements for sporting goods companies continue to
depreciate in euro terms, which bode well so far for 2014 gross margin as well as
2013 margin opportunities.
We highlight crude oil, aluminium (hardware), rubber and cotton as key raw
material sources for sporting goods companies, all of which continue to depreciate
in euro terms.
adidas sourcing
According to the adidas group’s FY12 annual report, adidas sourced 76% of its
group products from Asia and took a 380bp negative gross margin impact on
currency (Russian Rouble) and promotional activity. We highlight the sourcing
regional splits below.
adidas regional sourcing splits (FY12)
Europe
8%
Americas
16%
Asia 76%
56
Sporting Goods
We note that 96% of adidas brand, Reebok and adidas golf footwear was sourced
in Asia in FY12, 100bp less than in FY11. Furthermore, total Chinese footwear
sourcing declined by c.200bp yoy as the adidas group continues to find more costeffective labour alternatives without compromising on product quality, which is
subject to vigorous testing.
Within Asia, the adidas group sourced 72% of its product from China, 17% from
Vietnam, 8% from India and c.3% from Indonesia. We expect the Chinese
sourcing representation to continue to fall as the adidas group works more with
companies in other Asian supply destinations such as Cambodia and Bangladesh.
Moreover, we expect adidas to source more apparel in Turkey in order to increase
its proximity sourcing base, which will allow for increased flexibility when it comes
to future orders, thereby reducing the risk of over-stocking, markdown and gross
margin erosion. We forecast that the adidas group’s gross margin will increase by
150bp to 49.2%, ahead of adidas management’s official 2013 guided range of
48.0% to 48.5%.
Puma sourcing
World Cat Limited, Puma’s own procurement organisation with registered offices
in Hong Kong, is responsible for buying products for the Puma’s Puma, Tretorn
and Cobra Puma Golf brands.
World Cat has local offices in key supply regions and the scope of its responsibility
spans from selecting suppliers and production sites to negotiating prices and terms
of delivery and payment, up and to and including order placement and processing.
World Cat has also developed a “strategic supplier concept”, which periodically
runs a dedicated performance analysis on the entire supplier portfolio. It will also
test for quality and performance for regular and new suppliers alike. As sustainable
sourcing is a key part of Puma’s product and brand messaging, World Cat works
closely with social and environmental agencies and with International NGOs to
ensure that its suppliers meet water and energy consumption, carbon dioxide
emissions and waste management standards.
Overall, World Cat procurement activities include collaboration with more than
150 suppliers in 32 countries with 89% of total purchasing volume from Asia,
followed by EMEA with 6% and the Americas with 5%.
Within Asia, China and Vietnam account for the bulk of product sourcing at 39%
and 23% respectively. As with the adidas group, other Asian countries such as
Cambodia (11%), Indonesia (11%) and Bangladesh (8%) are gaining in importance
– Cambodia’s sourcing share increased by more than 300bp yoy to FY12 while
China’s sourcing share declined by c.400bp (higher cost inflation).
Given Puma’s reduced exposure to Performance product (apparel, footwear and
hardware), technically in our view, it should be easier to switch suppliers at a faster
rate and with less disruption. Performance product manufacturing is more
complicated and timely as it involves more complex processes so when changing
suppliers, there is often a lengthy training process involved before new regional
pieces roll off the manufacturing line.
57
Sporting Goods
Sporting goods events and share price performance
In order to assess whether there is any discernible trading correlation between
sporting goods companies before, during and after key sporting (football) events,
we have charted the relative historical share price performance for adidas, Puma
and Nike against the Eurofirst 300, Eurofirst 300 PG, MSCI Europe and S&P 500
Indices during previous UEFA Euro championships and FIFA World Cup
tournaments below.
Our analysis shows that sporting goods shares tend to outperform major indices
one and three months before the start of key football tournaments and
underperform three months from the start of the event – yet we acknowledge that
past performance is not necessarily an indication for future performance.
Sporting goods share price performance versus MSCI
Ahead of major football events from 1996 to 2012, sporting goods company share
prices tended to outperform against the MSCI European Index.
Sporting goods share price performance (%) -3M
60.0
50.0
40.0
30.0
20.0
10.0
0.0
-10.0
-20.0
UEFA World UEFA World UEFA World UEFA World UEFA
Cup
Euro
Cup
Euro
Cup
Euro
Cup
Euro
Euro
2004
2012
2010
2008
2006
2002
2000
1998
1996
Adidas
PUMA
Nike
20.0
15.0
10.0
5.0
0.0
-5.0
-10.0
-15.0
-20.0
Cup
Euro
Euro
Cup
Euro
Cup
Euro
Cup
Euro
2012
2010
2008
2006
2004
2002
2000
1998
1996
Adidas
MSCI Europe
PUMA
Nike
MSCI Europe
Source: Bloomberg
During and three months after major football events, sporting goods share prices
tended to underperform the MSCI European Index.
Sporting goods share performance (%) during
20.0
15.0
10.0
5.0
0.0
-5.0
-10.0
-15.0
-20.0
Sporting goods share performance (%) post +3M
15.0
5.0
-5.0
-15.0
-25.0
-35.0
-45.0
Euro
Cup
Euro
Cup
Euro
Cup
Euro
Cup
Euro
2012
2010
2008
2006
2004
2002
2000
1998
1996
Adidas
PUMA
Nike
MSCI Europe
Euro
Cup
Euro
Cup
Euro
Cup
Euro
Cup
Euro
2012
2010
2008
2006
2004
2002
2000
1998
1996
Adidas
PUMA
Nike
MSCI Europe
Source: Bloomberg
Overleaf, we chart the relative out/underperformance of adidas, Puma and Nike
against a broader range of indices.
58
Sporting Goods
Relative share price performances one month before the event
adidas
-10.0
-15.0
-5.0
0.0
5.0
10.0
15.0
20.0
UEFA Euro 2012
1.8
-3.6
World Cup 2010
1.6
5.8
10.1
6.4
UEFA Euro 2008
10.1
6.7
-5.9
World Cup 2006
-2.5
-5.6
-9.6
-0.2
UEFA Euro 2004
2.2
-0.3
-0.3
20.0
World Cup 2002
20.3
16.9
23.3
-6.5
-6.8
-7.0
UEFA Euro 2000
-9.7
World Cup 1998
25.0
-0.1
-1.0
-0.1
-0.8
1.8
-10.8
2.3
-1.9
UEFA Euro 1996
0.3
-3.0
FTSEEUROFIRST 300
4.7
0.2
FTSEUROFIRST 300 PG
MSCI Europe
S&P 500
Source: Bloomberg
Puma
-15.0
-10.0
-5.0
5.0
0.0
10.0
15.0
20.0
-4.1
-4.9
-4.0
-4.7
UEFA Euro 2012
0.2
-5.2
World Cup 2010
0.0
4.2
12.3
8.6
UEFA Euro 2008
12.4
8.9
-8.7
World Cup 2006
-12.4
-8.5
-5.3
5.4
UEFA Euro 2004
5.4
5.3
4.7
World Cup 2002
1.6
UEFA Euro 2000
-9.3
4.9
7.8
7.9
-6.2
-6.5
-6.7
11.0
-1.6
World Cup 1998
FTSEEUROFIRST 300
FTSEUROFIRST 300 PG
11.5
MSCI Europe
13.9
S&P 500
Source: Bloomberg
59
Sporting Goods
Nike
-20.0
-15.0
-5.0
-10.0
0.0
5.0
2.5
UEFA Euro 2012
2.7
-4.0
3.5
0.2
7.5
3.8
UEFA Euro 2008
7.5
4.1
7.9
World Cup 2006
8.2
4.2
1.2
UEFA Euro 2004
1.2
1.2
1.7
11.3
3.7
4.8
World Cup 2002
8.0
5.0
-3.8
-4.1
-4.3
UEFA Euro 2000
-7.0
World Cup 1998
15.0
-3.8
-9.2
World Cup 2010
10.0
3.4
-5.5
-18.1
-5.0
-2.5
8.3
UEFA Euro 1996
7.2
FTSEEUROFIRST 300
FTSEUROFIRST 300 PG
MSCI Europe
10.3
10.5
S&P 500
Source: Bloomberg
20.0
15.0
10.0
5.0
0.0
-5.0
-10.0
-15.0
-20.0
Euro
Cup
Euro
Cup
Euro
Cup
Euro
Cup
Euro
2012
2010
2008
2006
2004
2002
2000
1998
1996
Adidas
PUMA
Nike
MSCI Europe
S&P 500
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
-10.0
-20.0
-30.0
Euro
Cup
Euro
Cup
Euro
Cup
Euro
Cup
Euro
2012
2010
2008
2006
2004
2002
2000
1998
1996
Adidas
PUMA
Nike
MSCI Europe
S&P 500
Source: Bloomberg
60
Sporting Goods
Relative share price performances three months before the event
adidas
-10.0
-15.0
-5.0
0.0
5.0
10.0
6.1
UEFA Euro 2012
15.0
20.0
17.2
9.0
World Cup 2010
17.0
UEFA Euro 2008
12.2
7.8
-6.3
18.8
11.9
8.4
World Cup 2006
0.5
-2.7
7.1
5.1
UEFA Euro 2004
6.9
7.2
16.4
World Cup 2002
20.4
20.8
20.0
26.2
-3.1
UEFA Euro 2000
27.7
20.8
3.2
-9.2
World Cup 1998
30.0
9.1
3.5
-2.9
25.0
9.2
2.3
7.7
15.0
5.9
UEFA Euro 1996
11.9
FTSEEUROFIRST 300
FTSEUROFIRST 300 PG
MSCI Europe
14.9
S&P 500
Source: Bloomberg
Puma
-60.0
-40.0
-20.0
20.0
0.0
-1.0
UEFA Euro 2012
-3.6
3.6
UEFA Euro 2008
60.0
80.0
2.0
11.3
3.0
World Cup 2010
40.0
2.1
3.0
11.0
12.9
7.1
7.4
-3.5
-0.2
-3.3
World Cup 2006
-6.9
14.7
12.7
14.5
14.8
UEFA Euro 2004
56.2
World Cup 2002
UEFA Euro 2000
60.3
60.6
59.9
-18.4
-47.7
-23.8
-16.9
8.6
World Cup 1998
FTSEEUROFIRST 300
FTSEUROFIRST 300 PG
21.0
20.2
25.6
MSCI Europe
S&P 500
Source: Bloomberg
61
Sporting Goods
Nike
-40.0
-30.0
-20.0
0.0
-10.0
10.0
6.2
UEFA Euro 2012
3.6
12.0
0.0
UEFA Euro 2004
-6.2
-8.2
-6.4
-6.2
World Cup 2002
-8.7
50.0
60.0
0.3
15.5
15.8
3.4
-4.7
-4.3
-5.1
55.6
26.4
UEFA Euro 2000
57.1
50.2
World Cup 1998
-26.5
70.0
7.0
8.8
11.4
-3.4
40.0
9.2
UEFA Euro 2008
World Cup 2006
30.0
7.2
-1.1
World Cup 2010
20.0
9.3
-14.1
-14.9
-9.5
42.2
33.0
UEFA Euro 1996
FTSEEUROFIRST 300
FTSEUROFIRST 300 PG
MSCI Europe
42.1
39.1
S&P 500
Source: Bloomberg
Relative share price performances during the event
adidas
-30.0
-25.0
-20.0
-15.0
-10.0
-5.0
-7.0
UEFA Euro 2012
-6.9
0.0
5.0
15.0
-5.7
-5.6
-4.9
-5.5
-4.0
World Cup 2010
-3.5
UEFA Euro 2008
-4.6
-3.3
-1.2
-1.4
-2.1
-1.6
World Cup 2006
-1.3
UEFA Euro 2004
0.7
1.7
1.5
1.2
4.2
-4.0
World Cup 2002
2.6
UEFA Euro 2000
10.0
-2.5
4.2
-7.0
-24.1
-9.1
-13.5
World Cup 1998
-16.2
-13.4
-6.6
-8.8
3.8
UEFA Euro 1996
FTSEEUROFIRST 300
FTSEUROFIRST 300 PG
MSCI Europe
8.1
7.8
9.2
S&P 500
Source: Bloomberg
62
Sporting Goods
Puma
-40.0
-30.0
-10.0
-20.0
-9.8
UEFA Euro 2012
0.0
10.0
20.0
30.0
-5.4
-9.7
-8.6
-9.3
-8.6
-9.2
-7.7
World Cup 2010
-5.4
UEFA Euro 2008
-5.2
-6.5
-3.1
6.3
5.6
6.1
World Cup 2006
0.9
UEFA Euro 2004
8.4
3.9
3.7
3.4
22.4
14.1
World Cup 2002
-10.6
-27.7
UEFA Euro 2000
22.4
20.7
-12.7
-16.8
World Cup 1998
-19.5
-16.6
FTSEEUROFIRST 300
-10.3
-12.0
FTSEUROFIRST 300 PG
MSCI Europe
S&P 500
Source: Bloomberg
Nike
-30.0
UEFA Euro 2012
-25.0
-20.0
-23.2
-23.1
-22.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
20.0
-18.8
-3.3
-2.6
-3.2
-1.8
World Cup 2010
-4.0
UEFA Euro 2008
-5.1
-5.7
-6.3
-5.8
World Cup 2006
-1.8
-3.8
-3.6
4.2
UEFA Euro 2004
7.2
7.0
6.7
8.7
0.5
World Cup 2002
7.1
UEFA Euro 2000
15.0
8.7
-2.0
-19.0
-4.0
-1.6
11.3
World Cup 1998
8.7
-6.7
UEFA Euro 1996
FTSEEUROFIRST 300
FTSEUROFIRST 300 PG
11.5
16.1
-2.3
-2.6
-1.3
MSCI Europe
S&P 500
Source: Bloomberg
63
Sporting Goods
Relative share price performances three months after the beginning
adidas
-30.0
-40.0
-20.0
-10.0
0.0
10.0
-0.7
-2.4
UEFA Euro 2012
30.0
-7.3
-2.9
-3.1
-7.9
UEFA Euro 2008
-3.1
-6.8
-10.0
World Cup 2006
1.6
-7.3
-11.1
World Cup 2010
-7.9
-7.8
-5.3
11.3
UEFA Euro 2004
19.0
11.3
10.9
2.1
-11.0
World Cup 2002
2.2
-2.5
-3.1
-3.8
-2.0
-2.5
UEFA Euro 2000
World Cup 1998
20.0
-2.6
-25.4
-34.7
-29.9
-26.1
4.4
UEFA Euro 1996
FTSEEUROFIRST 300
FTSEUROFIRST 300 PG
MSCI Europe
8.6
8.3
11.4
S&P 500
Source: Bloomberg
Puma
-35.0
-30.0
-25.0
-20.0
UEFA Euro 2012
-14.8
-17.9
World Cup 2010
-10.0
-15.0
-15.0
-5.0
0.0
5.0
15.0
-13.1
-10.8
-14.1
-14.2
-9.7
-1.5
-6.2
UEFA Euro 2008
-5.1
-11.3
World Cup 2006
-1.5
-9.2
-9.2
-6.6
4.7
UEFA Euro 2004
4.7
4.3
12.4
2.3
-10.7
World Cup 2002
2.4
-2.2
-15.0
-15.7
-13.9
-14.4
UEFA Euro 2000
World Cup 1998
10.0
-19.1
-28.4
-23.5
-19.8
-11.1
UEFA Euro 1996
FTSEEUROFIRST 300
FTSEUROFIRST 300 PG
-7.0
-7.2
-4.1
MSCI Europe
S&P 500
Source: Bloomberg
64
Sporting Goods
Nike
-25.0
UEFA Euro 2012
-20.0
-21.3
-21.1
-10.0
-15.0
-5.0
0.0
5.0
10.0
20.0
-17.1
-4.1
-7.9
World Cup 2010
-4.2
0.3
-1.1
-5.8
UEFA Euro 2008
-1.1
-4.7
-7.3
World Cup 2006
-5.2
-5.1
-2.6
7.7
UEFA Euro 2004
7.7
7.3
15.4
-1.0
-14.0
World Cup 2002
-5.5
-0.9
-9.0
-9.7
UEFA Euro 2000
World Cup 1998
15.0
-19.3
-7.9
-8.4
-10.9
-20.2
-15.3
-11.6
0.7
UEFA Euro 1996
FTSEEUROFIRST 300
FTSEUROFIRST 300 PG
MSCI Europe
4.9
4.7
7.8
S&P 500
Source: Bloomberg
Post-event share price performance (+3 months)
20.0
10.0
0.0
-10.0
-20.0
-30.0
-40.0
-50.0
Euro
Cup
Euro
Cup
Euro
Cup
Euro
Cup
Euro
2012
2010
2008
2006
2004
2002
2000
1998
1996
Adidas
PUMA
Nike
MSCI Europe
S&P 500
Source: Bloomberg
65
Sporting Goods
Currency
We highlight currency exposure and the estimated impact from an
appreciation/depreciation of the US dollar versus the euro.
Exposure by company
Sporting goods companies mainly source products from Asia, where transactions
are US-dollar-denominated. As such, fluctuations in the dollar against other
currencies could have a significant impact on their earnings. The table below
summarises the impact of a fluctuation of the dollar against other currencies for
the three major sporting goods companies.
Dollar appreciation and impact vs. adidas, Puma and Nike – Translation
adidas
Positive
Negative
Appreciation of the USD vs. other currencies
Depreciation of the USD vs. other currencies
Puma
Positive
Negative
Nike
Negative
Positive
adidas group
The bulk of adidas’s sourcing expenses are dollar-denominated while sales are
denominated in other currencies, notably the euro.
We highlight below the potential impact of +/-10% variation of the euro against
the dollar, sterling and yen as well as a variation of the rouble against the dollar.
In our view, the main currency risks, to which adidas is exposed are the
euro/dollar and the rouble/dollar exchange rates.
Any variation of the euro/dollar exchange rate of +/-10% could result in a net
income impact of -€13m/+€12m. Any variation of the rouble/dollar exchange rate
of +/-10% could result in a net income impact of -€10m/+€8m.
adidas sensitivity analysis to currency fluctuations
31/12/2012
Equity
Net income
Equity
Net income
31/12/2011
Equity
Net income
Equity
Net income
US$
EUR
+10%
(129)
(13)
EUR 10%
158
12
US$
EUR
+10%
(195)
5
EUR 10%
243
-6
RUB
US$
+10%
(10)
US$ -10%
8
RUB
US$
+10%
(9)
US$ -10%
7
GBP
EUR
+10%
20
0
EUR 10%
-24
0
JPY
EUR
+10%
15
(1)
EUR 10%
-18
1
GBP
EUR
+10%
15
0
EUR 10%
-19
0
JPY
EUR
+10%
11
(3)
EUR 10%
-13
4
Source: Berenberg estimates, Bloomberg, company data
66
Sporting Goods
Puma
Puma mainly sources in Asia, where most payments are dollar-denominated while
its sales are denominated in other currencies, notably the euro. Moreover, Puma is
exposed to FX risks arising from intra-group loans granted for financing purposes.
Any variation of the dollar exchange rate of +/-10% against all other currencies
could result in the hedging reserve in equity and the faire value of the hedges
increasing/decreasing by €56.4m (+/-€57m in FY11).
Nike
Nike has several subsidiaries operating in currencies other than the dollar.
Therefore, a weaker dollar is a positive to its earnings while a stronger dollar
reduces earnings. Currencies to which Nike is the most exposed to are the euro,
sterling and yen.
67
Sporting Goods
Company KPIs
We outline key KPIs for the adidas group, Puma and Nike in order to assess key
management remuneration components.
Company specific KPIs
Company
KPI
adidas
Operating cash flow as the most
important driver to increase
shareholders value
Metrics
Operating profit
Change in operating working
capital
Net investments
(capex - D&A)
Puma
By 2015: “Back on the Attack”
metrics
2013: Successful implementation
of the transformation and costreduction programme
Sales, SG&A, operating margin,
capex as a percentage of sales,
FCF and ROCE
Profitability over the shorter
term
Nike
Operating profit
Sales, EPS and share
price performances
Operating profit of
individual segments
WKR and PP&E are
regularly reviewed
by management
adidas group
According to adidas, its strategy aims at increasing shareholder value via the
maximisation of operating cash flow. In order to achieve its targets, adidas focuses
on continuously increasing the top and bottom line while optimising the use of
invested capital (inventories and net investments).
Both the management of operating segments and management at market levels
have responsibility for improving profitability, optimising working capital and
managing capex.
adidas’s operating income (adjusted), working capital, capex-D&A
400
300
200
100
0
-100
-200
-300
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E
Operating income, adjusted
Working capital check
Capex - D&A
In addition, management is focused on long-term performance improvement
where adidas has developed a modified economic value added (EVA) model called
Contribution After Capital Charge (CACC), which is used as one of the main
metrics to define management’s variable compensation.
We highlight adidas’s post-tax ROIC forecasts to FY15E. According to our
estimates, post-tax ROIC ought to increase from 6.5% in FY12 to 12.4% in FY15.
68
Sporting Goods
adidas’s post-tax ROIC evolution (FY06-15E)
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
FY06
FY07
FY08
FY09
FY10
FY11
FY12 FY13E FY14E FY15E
Post tax ROIC
Puma
Puma’s 2015 “Back on the Attack” plan key KPIs consist of increasing net sales,
achieving a stable gross margin, decreasing SG&A costs and an increasing EBIT
margin. The plan includes non-P&L targets such as decreasing capital expenditure
as a percentage of sales, increasing free cash flow and return on capital employed.
Shorter-term, Puma’s key target consists of a return to more sustainable
profitability via its transformation and cost reduction programme (including the
closure of unprofitable stores (c.90 in Europe and North America) and the
consolidation of its warehouse/DC structure from 23 to seven.
We are cautious about the mid to long-term market share and top-line growth
relative to the larger sporting goods players for Puma but are confident over a
shorter timeframe that the transformation and cost reduction programme will
deliver incremental returns, hence the forecast shape of Puma’s post-tax ROIC
profile below.
Puma’s post-tax ROIC evolution (FY06-15E)
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
FY06
FY07
FY08
FY09
FY10
FY11
Post tax ROIC
69
Sporting Goods
Nike
Operating profit is the key metric used by Nike to assess the performance of
individual segments. Nike’s compensation programme consists of a base salary, a
performance-based annual incentive bonus and long-term incentives (incentive
plan and stock options).
Annual bonuses are paid to executives under Nike’s Executive Performance
Sharing Plan (PSP). The PSP for all executives in based on Nike’s overall
performance each year, measured by the operating profit targets (adjusted for
potential impacts of acquisitions, divestures or accounting changes).
In addition to its stock option programme, Nike has also a longer-term incentive
plan which is 50% based on cumulative revenues for the three-year performance
period and 50% based on cumulative diluted EPS for the period, adjusted for
acquisitions, divestures and accounting changes. Annual bonuses and long-term
incentive plans are capped at certain levels.
70
Sporting Goods
Valuation
In order to value sporting goods companies we primarily take a fundamental/
bottom-up approach. We use P/E, EV/EBITDA and PEG as our main
comparators, which are driven by earnings and cash flow forecasts.
In addition, we believe that investors rightly evaluate each company on a brand
premium/discount basis, factor a discounted probability as to whether company
targets (all three major sporting goods companies have published their own
investment strategy and performance targets to 2015) will be achieved as well as
partly basing valuation around the sporting goods cycle (relative to major sporting
goods events), as share price performance will fluctuate subject to the year ahead’s
global sporting events calendar. We highlight below the major sporting goods
scheduled events for 2013 to 2018:
Major sporting events in 2013
Event
Australian Open
Start
End
Tennis
14/01/13
27/01/13
South Africa
19/01/13
10/02/13
American Football
03/02/13
03/02/13
2013 Africa Cup of Nations
Super Bowl
Sport
Masters
Golf
08/04/13
14/04/13
Football
25/05/13
25/05/13
French Open
Tennis
21/05/13
09/06/13
NBA Finals
Basketball
06/06/13
20/06/13
UEFA Champions League Final
US Open
Golf
13/06/13
16/06/13
Wimbledon
Tennis
24/06/13
07/07/13
British Open
Golf
18/07/13
21/07/13
IAAF World Championships in Athletics
Russia
10/08/13
18/08/13
US Open
Tennis
26/08/13
08/09/13
ATP World Tour Final
Tennis
Nov
Nov
Source: Relevant sporting events websites, Berenberg bank estimates
Major sporting events in 2014
Event
Sport
Start
End
Tennis
Jan
Jan
American Football
02/02/14
02/02/14
Multi
07/02/14
23/02/14
Golf
07/04/14
13/04/14
UEFA Champions League Final
Football
May
May
French Open
Tennis
May
May
NBA Finals
Basketball
Jun
Jun
Australian Open
Super Bowl
Winter Olympics
Masters
Golf
12/06/14
15/06/14
FIFA World Cup 2014
US Open
Football
12/06/14
13/07/14
Wimbledon
Tennis
Jul
Jul
British Open
Golf
17/07/14
20/07/14
US Open
Tennis
Aug
Sep
ATP World Tour Final
Tennis
Nov
Nov
71
Sporting Goods
Major sporting events in 2013-2018
Year
Event
Location
Start
End
2013
2013
South Africa
19/01/13
10/02/13
Russia
10/08/13
18/08/13
2014
Winter Olympics
Russia
07/02/14
23/02/14
2014
FIFA World Cup 2014
Brazil
12/06/14
13/07/14
2015
AFC Asian Cup
Australia
04/01/15
26/01/15
2015
Morocco
TBC
TBC
2015
China
22/08/15
30/08/15
2016
UEFA Euro 2016
France
Jun
Jul
2016
Summer Olympics
Brazil
05/08/16
21/08/16
2017
Libya
TBC
TBC
2017
United Kingdom
05/08/17
13/08/17
2018
Winter Olympics
South Korea
09/02/18
25/02/18
2018
FIFA World Cup 2018
Russia
Jun
Jul
We note that company sales and marketing and research and development budgets
are geared towards such events which can result in some EBIT volatility predicated
around investment timing for key sporting events.
As such, we use DCF as a supportive measure for our P/E based price targets.
adidas Bloomberg and Berenberg estimates vs. peers
Sales growth
EBITDA growth
EBIT growth
2013E
2014E
2015E
2013E
2014E
2015E
2013E
2014E
2015E
1.4%
7.1%
6.3%
21.7%
20.6%
-16.3%
10.0%
5.7%
-9.4%
5.5%
7.9%
7.8%
20.5%
21.4%
3.4%
7.2%
5.0%
7.2%
4.8%
6.9%
9.2%
20.4%
21.5%
9.0%
4.6%
4.2%
12.3%
20.9%
10.9%
16.7%
24.3%
9.9%
-15.9%
14.7%
35.9%
n.m.
11.0%
12.1%
9.6%
23.9%
30.0%
3.8%
10.8%
11.0%
249.9%
10.0%
8.2%
12.8%
22.6%
21.4%
11.7%
3.0%
7.1%
45.1%
5.1%
12.1%
15.1%
26.6%
11.6%
-15.3%
16.8%
50.5%
n.m.
13.0%
11.9%
11.2%
25.4%
26.5%
2.7%
12.9%
14.0%
n.m.
9.7%
NA
9.4%
NA
25.7%
12.5%
NA
9.2%
145.5%
Total sector weighted
8.4%
9.6%
9.4%
13.1%
15.1%
11.3%
13.4%
13.9%
6.0%
Total sector median
6.3%
7.2%
9.0%
15.7%
11.0%
11.7%
13.6%
13.0%
11.1%
4.5%
-45.8%
3.4%
-58.9%
6.7%
-30.9%
6.5%
-32.4%
5.9%
-36.8%
6.4%
-31.6%
16.3%
24.3%
43.6%
233.4%
16.3%
7.8%
17.4%
14.7%
14.4%
27.3%
19.4%
71.0%
17.0%
27.2%
20.8%
55.7%
18.6%
33.9%
19.5%
40.8%
15.4%
157.0%
21.7%
262.5%
Puma
Nike
VF Corp
Under Armour
Lulu Lemon
Anta Spots
Asics
Amer Sports
Li Ning
adidas
adidas vs peers (premium/ discount)
adidas Berenberg estimates
Source: Berenberg Bank estimates, Bloomberg
72
Sporting Goods
Net debt/ EBITDA
Puma
Nike
VF Corp
Under Armour
Lulu Lemon
Anta Spots
Asics
Amer Sports
Li Ning
Total sector median
adidas
EBIT margin
EBITDA margin
2013E
-1.2x
-1.0x
0.4x
-1.0x
-12.1x
-3.3x
-0.3x
1.9x
3.0x
-1.8x
2014E
-1.5x
-0.9x
0.1x
-1.1x
-13.2x
-3.4x
-0.6x
1.6x
0.5x
-2.0x
2015E
-1.7x
NA
0.0x
NA
-15.9x
-3.1x
-0.6x
1.3x
0.2x
-0.7x
2013E
11.3%
14.9%
16.8%
14.0%
28.0%
19.9%
10.3%
9.5%
2.1%
16.1%
2014E
11.9%
15.5%
17.0%
14.4%
29.9%
19.9%
10.6%
10.0%
6.7%
16.8%
2015E
12.5%
15.7%
17.6%
14.7%
29.9%
20.4%
10.5%
10.3%
8.7%
17.0%
2013E
9.2%
13.3%
14.6%
11.8%
25.5%
18.5%
8.4%
7.7%
-3.3%
14.2%
2014E
9.9%
13.8%
15.0%
12.3%
26.5%
18.4%
8.8%
8.4%
2.6%
14.8%
2015E
10.3%
NA
15.1%
NA
27.5%
19.0%
NA
8.8%
5.7%
9.5%
-1.0x
-0.9x
-0.6x
14.0%
14.4%
14.7%
11.8%
12.3%
12.7%
-0.4x
-79.2%
-0.5x
-72.2%
-0.6x
-71.1%
-0.7x
-65.3%
-0.6x
-16.2%
-0.9x
20.9%
10.9%
-32.5%
11.1%
-30.8%
11.9%
-29.2%
12.3%
-26.7%
12.8%
-24.7%
13.8%
-19.1%
8.9%
-37.4%
9.3%
-34.7%
9.9%
-33.1%
10.4%
-29.6%
10.8%
13.3%
11.9%
25.3%
In short, adidas looks attractive relative to peers. We appreciate that FY14 is the
year where we expect to see “all-in” positive operating leverage start to materialise.
adidas – market price multiples Bloomberg and Berenberg estimates vs. peers
PE
Puma
Nike
VF Corp
Under Armour
Lulu Lemon
Anta Spots
Asics
Amer Sports
Li Ning
Total sector median
adidas
EV/ EBITDA
EV/ EBIT
EV/ sales
PEG
2013E
2014E
2015E
2013E
2014E
2015E
2013E
2014E
2015E
2013E
2014E
2015E
2012-15E
16.6x
21.0x
15.7x
38.4x
34.7x
12.9x
21.9x
13.4x
n.m.
21.8x
14.6x
18.2x
13.9x
30.4x
27.3x
12.7x
19.6x
11.5x
47.4x
18.9x
13.2x
16.1x
12.3x
23.9x
22.2x
11.5x
16.7x
10.5x
15.6x
16.1x
8.2x
12.8x
10.3x
18.0x
21.1x
6.6x
12.1x
9.1x
32.8x
13.1x
7.4x
11.4x
9.4x
14.6x
16.2x
6.4x
11.0x
8.2x
9.4x
11.3x
6.7x
10.5x
8.4x
11.9x
13.3x
5.7x
10.6x
7.6x
6.5x
10.1x
10.1x
14.3x
11.9x
21.3x
23.1x
7.1x
14.9x
11.1x
-20.2x
14.5x
8.9x
12.7x
10.7x
17.0x
18.3x
6.9x
13.2x
9.8x
24.3x
12.9x
8.1x
NA
9.8x
NA
14.5x
6.2x
NA
9.0x
9.9x
8.5x
0.9x
1.9x
1.7x
2.5x
5.9x
1.3x
1.2x
0.9x
0.7x
2.2x
0.9x
1.8x
1.6x
2.1x
4.8x
1.3x
1.2x
0.8x
0.6x
2.0x
0.8x
1.6x
1.5x
1.7x
4.0x
1.2x
1.1x
0.8x
0.6x
1.8x
1.7
1.5
1.2
1.6
1.8
-2.2
1.4
0.7
n.m.
1.4
18.8x
18.2x
15.6x
12.1x
9.4x
8.4x
11.9x
12.7x
9.4x
1.3x
1.3x
1.2x
1.5
17.1x
-21.7%
16.1x
-26.2%
14.2x
-24.5%
13.2x
-29.7%
12.2x
-24.1%
10.7x
-33.4%
9.2x
-29.9%
9.0x
-31.5%
7.9x
-30.1%
7.7x
-32.3%
6.9x
-31.8%
6.4x
-36.7%
11.2x
-22.8%
10.8x
-25.9%
9.5x
-26.5%
9.0x
-30.1%
8.2x
-3.5%
7.4x
-12.9%
1.0x
-54.5%
1.0x
-54.4%
0.9x
-52.3%
0.9x
-52.1%
0.9x
-49.9%
0.9x
-50.0%
0.5
-65.0%
0.4
-71.5%
adidas – target price multiples Bloomberg and Berenberg estimates vs. peers
PE
EV/ EBITDA
EV/ EBIT
EV/ sales
Puma
Nike
VF Corp
Under Armour
Lulu Lemon
Anta Spots
Asics
Amer Sports
Li Ning
2013E
17.2x
21.5x
16.3x
40.9x
37.4x
12.9x
20.2x
14.8x
n.m.
22.6x
2014E
15.1x
18.7x
14.5x
32.3x
29.5x
12.7x
18.2x
12.7x
47.4x
19.5x
2015E
13.7x
16.5x
12.8x
25.4x
23.9x
11.5x
15.5x
11.6x
15.6x
16.7x
2013E
8.5x
13.1x
10.7x
19.2x
22.8x
5.7x
11.3x
9.8x
28.9x
13.6x
2014E
7.7x
11.7x
9.8x
15.5x
17.5x
5.5x
10.2x
8.8x
8.3x
11.7x
2015E
7.0x
10.8x
8.7x
12.6x
14.5x
4.9x
9.9x
8.3x
5.7x
10.5x
2013E
10.5x
14.7x
12.3x
22.7x
25.0x
6.1x
13.8x
12.0x
n.m.
15.2x
2014E
9.3x
13.1x
11.1x
18.1x
19.8x
5.9x
12.2x
10.6x
21.5x
13.3x
2015E
8.4x
NA
10.1x
NA
15.7x
5.3x
NA
9.7x
8.7x
8.8x
2013E
1.0x
2.0x
1.8x
2.7x
6.4x
1.1x
1.2x
0.9x
0.6x
2.3x
2014E
0.9x
1.8x
1.7x
2.2x
5.2x
1.1x
1.1x
0.9x
0.6x
2.0x
2015E
0.9x
1.7x
1.5x
1.9x
4.3x
1.0x
1.0x
0.8x
0.5x
1.8x
Total sector median
18.7x
18.2x
15.5x
11.3x
9.8x
8.7x
13.0x
12.2x
9.2x
1.2x
1.1x
1.0x
18.5x
-18.2%
20.1x
-10.9%
15.4x
-21.0%
16.6x
-15.1%
13.3x
-20.6%
13.4x
-19.5%
10.0x
-26.5%
11.2x
-17.2%
8.6x
-26.6%
9.6x
-18.2%
7.5x
-28.4%
8.0x
-23.4%
12.2x
-19.7%
13.5x
-11.3%
10.3x
-22.8%
11.3x
-15.4%
8.9x
1.3%
9.3x
5.3%
1.1x
-52.6%
1.3x
-45.3%
1.0x
-50.2%
1.2x
-42.5%
1.0x
-47.6%
1.1x
-39.8%
adidas
73
Sporting Goods
Puma – Bloomberg and Berenberg estimates vs. peers
Sales growth
EBITDA growth
EBIT growth
2013E
2014E
2015E
2013E
2014E
2015E
2013E
2014E
2015E
4.5%
7.1%
6.3%
21.7%
20.6%
-16.3%
10.0%
5.7%
-9.4%
6.7%
7.9%
7.8%
20.5%
21.4%
3.4%
7.2%
5.0%
7.2%
5.9%
6.9%
9.2%
20.4%
21.5%
9.0%
4.6%
4.2%
12.3%
16.3%
10.9%
16.7%
24.3%
9.9%
-15.9%
14.7%
35.9%
n.m.
16.3%
12.1%
9.6%
23.9%
30.0%
3.8%
10.8%
11.0%
249.9%
14.4%
8.2%
12.8%
22.6%
21.4%
11.7%
3.0%
7.1%
45.1%
17.0%
12.1%
15.1%
26.6%
11.6%
-15.3%
16.8%
50.5%
n.m.
18.6%
11.9%
11.2%
25.4%
26.5%
2.7%
12.9%
14.0%
n.m.
15.4%
NA
9.4%
NA
25.7%
12.5%
NA
9.2%
145.5%
8.0%
9.3%
9.0%
13.4%
15.5%
12.0%
14.3%
14.7%
7.5%
Total sector median
6.3%
7.2%
9.0%
15.5%
12.1%
12.8%
16.0%
13.5%
13.9%
1.4%
-81.8%
0.2%
-97.5%
5.5%
-40.8%
5.2%
-44.4%
4.8%
-47.0%
4.8%
-46.2%
20.9%
56.7%
106.1%
694.3%
11.0%
-29.1%
11.3%
-27.0%
10.0%
-16.7%
9.2%
-22.8%
5.1%
-64.6%
5.3%
-62.8%
13.0%
-11.7%
12.7%
-13.6%
9.7%
29.6%
10.2%
35.1%
adidas
Nike
VF Corp
Under Armour
Lulu Lemon
Anta Spots
Asics
Amer Sports
Li Ning
Puma
Puma vs peers (premium/ discount)
Puma Berenberg estimates
Net debt/ EBITDA
adidas
Nike
VF Corp
Under Armour
Lulu Lemon
Anta Spots
Asics
Amer Sports
Li Ning
Total sector median
Puma
EBITDA margin
EBIT margin
2013E
-0.4x
-1.0x
0.4x
-1.0x
-12.1x
-3.3x
-0.3x
1.9x
3.0x
-1.6x
2014E
-0.6x
-0.9x
0.1x
-1.1x
-13.2x
-3.4x
-0.6x
1.6x
0.5x
-1.7x
2015E
-0.6x
NA
0.0x
NA
-15.9x
-3.1x
-0.6x
1.3x
0.2x
-0.4x
2013E
10.9%
14.9%
16.8%
14.0%
28.0%
19.9%
10.3%
9.5%
2.1%
15.4%
2014E
11.9%
15.5%
17.0%
14.4%
29.9%
19.9%
10.6%
10.0%
6.7%
16.1%
2015E
12.8%
15.7%
17.6%
14.7%
29.9%
20.4%
10.5%
10.3%
8.7%
16.5%
2013E
8.9%
13.3%
14.6%
11.8%
25.5%
18.5%
8.4%
7.7%
-3.3%
13.5%
2014E
9.9%
13.8%
15.0%
12.3%
26.5%
18.4%
8.8%
8.4%
2.6%
14.1%
2015E
10.8%
NA
15.1%
NA
27.5%
19.0%
NA
8.8%
5.7%
10.5%
-0.4x
-0.6x
-0.6x
14.0%
14.4%
14.7%
11.8%
12.3%
12.9%
-1.2x
-23.5%
-1.2x
-24.8%
-1.5x
-15.4%
-1.5x
-15.0%
-1.7x
293.3%
-1.8x
318.6%
11.3%
-26.4%
11.5%
-25.5%
11.9%
-26.0%
12.1%
-24.6%
12.5%
-24.1%
12.6%
-23.2%
9.2%
-31.7%
9.3%
-30.7%
9.9%
-30.2%
10.0%
-29.1%
10.3%
-1.6%
10.5%
0.2%
Puma – market price multiples Bloomberg and Berenberg estimates vs. peers
PE
adidas
Nike
VF Corp
Under Armour
Lulu Lemon
Anta Spots
Asics
Amer Sports
Li Ning
Total sector median
Puma
2013E
17.1x
21.0x
15.7x
38.4x
34.7x
12.9x
21.9x
13.4x
n.m.
21.1x
2014E
14.2x
18.2x
13.9x
30.4x
27.3x
12.7x
19.6x
11.5x
47.4x
18.2x
EV/ EBITDA
2015E
12.2x
16.1x
12.3x
23.9x
22.2x
11.5x
16.7x
10.5x
15.6x
15.5x
2013E
9.2x
12.8x
10.3x
18.0x
21.1x
6.6x
12.1x
9.1x
32.8x
12.6x
2014E
7.9x
11.4x
9.4x
14.6x
16.2x
6.4x
11.0x
8.2x
9.4x
10.9x
EV/ EBIT
2015E
6.9x
10.5x
8.4x
11.9x
13.3x
5.7x
10.6x
7.6x
6.5x
9.7x
2013E
11.2x
14.3x
11.9x
21.3x
23.1x
7.1x
14.9x
11.1x
n.m.
14.2x
2014E
9.5x
12.7x
10.7x
17.0x
18.3x
6.9x
13.2x
9.8x
24.3x
12.4x
EV/ sales
2015E
8.2x
NA
9.8x
NA
14.5x
6.2x
NA
9.0x
9.9x
4.6x
2013E
1.0x
1.9x
1.7x
2.5x
5.9x
1.3x
1.2x
0.9x
0.7x
2.0x
2014E
0.9x
1.8x
1.6x
2.1x
4.8x
1.3x
1.2x
0.8x
0.6x
1.8x
PEG
2015E
0.9x
1.6x
1.5x
1.7x
4.0x
1.2x
1.1x
0.8x
0.6x
1.6x
2012-15F
0.5
1.5
1.2
1.6
1.8
-2.2
1.4
0.7
n.m.
1.2
19.0x
18.2x
15.6x
12.1x
9.4x
8.4x
13.1x
12.7x
9.4x
1.3x
1.3x
1.2x
1.3
16.6x
-21.3%
16.8x
-20.5%
14.6x
-19.5%
14.7x
-19.3%
13.2x
-15.0%
13.2x
-15.2%
8.2x
-34.9%
8.0x
-36.8%
7.4x
-31.9%
7.2x
-34.0%
6.7x
-30.6%
6.6x
-32.3%
10.1x
-29.1%
9.8x
-31.3%
8.9x
-28.2%
8.7x
-30.3%
8.1x
78.4%
7.9x
72.6%
0.9x
-54.4%
1.0x
-52.2%
0.9x
-51.8%
0.9x
-49.3%
0.8x
-49.0%
0.9x
-46.4%
1.7
43.9%
8.2
586.4%
74
Sporting Goods
Puma – target price multiples Bloomberg and Berenberg estimates vs. peers
PE
EV/ EBITDA
EV/ sales
EV/ EBIT
adidas
Nike
VF Corp
Under Armour
Lulu Lemon
Anta Spots
Asics
Amer Sports
Li Ning
2013E
18.5x
21.5x
16.3x
40.9x
37.4x
12.9x
20.2x
14.8x
n.m.
22.1x
2014E
15.4x
18.7x
14.5x
32.3x
29.5x
12.7x
18.2x
12.7x
47.4x
19.0x
2015E
13.3x
16.5x
12.8x
25.4x
23.9x
11.5x
15.5x
11.6x
15.6x
16.2x
2013E
10.0x
13.1x
10.7x
19.2x
22.8x
5.7x
11.3x
9.8x
28.9x
13.1x
2014E
8.6x
11.7x
9.8x
15.5x
17.5x
5.5x
10.2x
8.8x
8.3x
11.3x
2015E
7.5x
10.8x
8.7x
12.6x
14.5x
4.9x
9.9x
8.3x
5.7x
10.1x
2013E
12.2x
14.7x
12.3x
22.7x
25.0x
6.1x
13.8x
12.0x
n.m.
14.8x
2014E
10.3x
13.1x
11.1x
18.1x
19.8x
5.9x
12.2x
10.6x
21.5x
12.9x
2015E
8.9x
NA
10.1x
NA
15.7x
5.3x
NA
9.7x
8.7x
9.0x
2013E
1.1x
2.0x
1.8x
2.7x
6.4x
1.1x
1.2x
0.9x
0.6x
2.1x
2014E
1.0x
1.8x
1.7x
2.2x
5.2x
1.1x
1.1x
0.9x
0.6x
1.9x
2015E
1.0x
1.7x
1.5x
1.9x
4.3x
1.0x
1.0x
0.8x
0.5x
1.7x
Total sector median
19.4x
18.2x
15.5x
11.3x
9.8x
8.7x
13.0x
12.2x
9.3x
1.2x
1.1x
1.0x
17.2x
-22.1%
14.8x
-32.9%
15.1x
-20.2%
17.8x
-6.3%
13.7x
-15.7%
15.5x
-4.2%
8.5x
-35.1%
17.5x
33.3%
7.7x
-32.1%
8.5x
-24.8%
7.0x
-30.8%
7.6x
-24.3%
10.5x
-29.5%
11.0x
-26.1%
9.3x
-28.5%
10.4x
-19.5%
8.4x
-6.0%
9.2x
3.0%
1.0x
-54.7%
1.0x
-54.2%
0.9x
-52.1%
1.0x
-49.0%
0.9x
-49.3%
0.9x
-46.2%
Puma
How did sporting goods companies fare during QE1 and QE2?
Sporting goods companies are not immune to recession as in times of financial
stress, consumers will postpone/cancel discretionary purchases and/or reduce the
wallet size of discretionary-related spend geared towards premium performance
products. adidas underperformed peers during 2008-2009 primarily due to a
material underperformance of the Reebok brand and overstocking in key regions.
FY09 sales deteriorated by 4% on a reported basis and by 6% on a currency-neutral
basis.
Wholesale (69% of FY09 group sales) currency-neutral sales underperformed Retail
at -9%. On a brand-by-brand basis, both Reebok and adidas sales declined by 7%
and by 5% respectively on a currency-neutral basis. Due to the high sales volume
directed through the wholesale channel, sporting goods companies have to stock
the wholesale channel based on the future order book.
Thus, when global economic shocks occur, sporting goods business models have
historically not been flexible enough to deal with wholesale order book volatility,
heavy mark-downs and rapid reaction rationalisation of the cost base. In adidas’s
case, the FY09 group gross margin declined by 330bp to 45.4% (Wholesale fell by
210bp to 41.6% and Retail by 290bp to 58.6%) yet group EBIT declined by c.53%
to just 4.9%, a startling reminder of significant operating de-leverage.
In FY09, Puma’s top line fell by 3% to €2,447m and EBIT and EPS declined by
14% and 17% respectively (on an adjusted basis). Puma’s group gross margin
declined by 490bp.
In the table below, we highlight the adidas group’s and Puma’s share price
performance six and three months before QE1 and QE2 and three and six months
afterwards against the STOXX 600 Index and the E3PERC Index to compare
sporting goods performance with household, personal and luxury goods stocks.
adidas was a clear outperformer pre- and post-quantitative easing versus Puma.
adidas’s and Puma’s QE1 and QE2 performance (pre- and post-)
QE1
Stoxx 600
E3PERC
Puma
adidas
-6M
-33%
-27%
-41%
6%
-3M
-13%
-11%
-13%
0%
QE2
+3M
20%
15%
32%
10%
+6M
43%
45%
89%
11%
Stoxx 600
E3PERC
Puma
adidas
-6M
1%
11%
0%
5%
-3M
3%
8%
-6%
-1%
+3M
4%
19%
4%
22%
+6M
13%
19%
0%
16%
Source: Bloomberg, Berenberg estimates
75
adidas AG
Sporting Goods
On the ball
•
We initiate coverage of adidas AG with a Buy recommendation and a
€95 price target, providing 25% upside from current share price levels.
Buy (initiation)
Rating system
Absolute
adidas ought to generate mid- to high single-digit sales and doubledigit EBIT, EPS and DPS growth on a three-year CAGR basis (FY1215E). Our three-year sales and EPS CAGR forecasts of 6% and 23%
respectively reflect the strong operating leverage effect we expect to
materialise through increased retail sales, distribution rationalisation,
market share and price/mix gains. Our FY13E and FY14E earnings
estimates are 5% and 7% ahead of Bloomberg consensus at €4.72 and
€5.73 respectively.
Current price
Price target
•
We believe adidas is at a more advanced stage in terms of the
planning, execution and delivery of its Route 2015 investment plan
than its closest European peer, Puma, is with its own 2015 strategy.
We expect adidas to increase its share of the global sporting goods
market by 560bp over the next three years (FY12-15E),
outperforming market growth of 1.5x global GDP (2.2x GDP for
adidas) compared with a 10bp market share decline for Puma.
Performance data
•
We view FY13 as a transitional year, with greater operating leverage
expected in FY14 and FY15. According to our analysis, adidas ought
to exceed its 2015 sales target of €17bn by c.3% to €17.5bn and
outperform its FY15 internal EBIT target of 11% by 90bp. Our
FY15E earnings estimates are c.13% ahead of Bloomberg consensus
at €7.07 (Bloomberg consensus €6.26).
•
•
adidas currently trades on FY13E and FY14E P/Es of 16.1x and
13.2x compared with its seven-year average P/E of c.17x. According
to our analysis, adidas has the lowest PEG ratio at 0.5x versus our
peer average (market capitalisation weighted) of 1.3x, Nike at 1.5x and
Puma at 1.7x. Our €95 target price, based on our P/E analysis and
driven by our earnings and cash flow, forecasts implies non-cashadjusted FY13E and FY14E P/Es of 20.1x and 16.6x and is
supported by our DCF of €98 (9% WACC and 3% terminal growth).
Y/E 31.12., EUR m
Sales
EBITDA
EBIT
Net profit
Net debt (net cash)
EPS (reported)
EPS (recurring)
CPS
DPS
Gross margin
EBITDA margin
EBIT margin
Dividend yield
NOPAT/IC (Post tax ROIC)
EV/sales
EV/EBITDA
EV/EBIT
P/E
ROIC/WACC % spread
Source: Company data, Berenberg Bank
2011
2012
2013E
2014E
2015E
13,322
1,199
953
613
91
2.9
2.9
1.2
1.0
47.5%
9.0%
7.2%
1.3%
8.1%
1.3
14.1
17.7
25.9
-0.9%
14,883
1,195
1,185
791
448
2.5
3.8
3.5
1.4
47.7%
8.0%
8.0%
1.8%
6.5%
1.1
14.1
14.3
20.1
-2.5%
15,395
1,716
1,432
988
864
4.7
4.7
3.3
1.7
49.2%
11.1%
9.3%
2.2%
10.7%
1.1
9.9
11.8
16.1
1.7%
16,399
2,014
1,712
1,199
1,366
5.7
5.7
4.1
2.0
49.9%
12.3%
10.4%
2.7%
11.5%
1.0
8.4
9.9
13.2
2.5%
17,455
2,405
2,083
1,479
2,061
7.1
7.1
5.4
2.5
50.6%
13.8%
11.9%
3.3%
12.4%
1.0
7.0
8.1
10.7
3.4%
EUR 75.84
EUR 95.00
18/04/2013 XETRA Close
Market cap EUR 15,880m
Reuters
ADSGn.DE
Bloomberg
ADS GY
Share data
Shares outstanding (m)
Enterprise value (EUR m)
Daily trading volume
High 52 weeks (EUR)
Low 52 weeks (EUR)
Relative performance to SXXP
1 month
1.9 %
3 months
14.7 %
12 months
17.1 %
209
16,905
900,926
82
56
DAX
3.2 %
12.6 %
20.7 %
Business activities:
Sporting goods
Non-institutional shareholders:
adidas management 2%
25 April 2013
John Guy
Analyst
+44 20 3465 2674
[email protected]
Bassel Choughari
Analyst
+44 20 3465 2675
[email protected]
Rupert Trotter
Specialist Sales
+44 20 3207 7815
[email protected]
76
adidas AG
Sporting Goods
Catalysts for share price performance
adidas has outperformed the DAX index and SXXP 600 by 18% and 26% on a
relative basis over the past three months. The stock has re-rated by 13% over the
same period, primarily due to earnings upgrades post-FY12 results, whereby the
Q412 gross margin and earnings beat consensus forecasts. In addition,
management took, in our view, the correct decision to write down losses and
restate prior year accounts to fully reflect the impact of illegal trading and
accounting practices at its Reebok Indian operations.
We do not anticipate that the rate of Q412 gross margin improvement (+200bp
yoy to 47.6%) will be repeated throughout 2013. However, we see upside risk to
group gross margin through ongoing favourable product and regional sales mix,
selected price increases supported by market leading innovation as well as an
increased share in higher-margin retail sales. We forecast retail to account for
c.24% of group sales by FY13, an increase of 120bp yoy compared with a 170bp
yoy increase in FY12 to 22.7%. We appreciate offsetting factors such as less
favourable hedging (the adidas euro/dollar hedge rate in 2012 was 1.32 compared
with 1.37/8 in 2013), which implies a c.400bp FX headwind. Ongoing Japanese
yen weakness/volatility and higher labour costs are also expected to mitigate FY13
gross margin evolution.
We believe 2013 represents a transitional year for adidas. Our FY13E sales and
earnings growth assumptions are lower relative to our FY14 and FY15 estimates as
we factor a negative FX translational impact of c.2% and appreciate that the H113
comparison base is much tougher at 11% on a currency neutral basis compared
with 3% for the second half of the year. Our assumptions for the first half of 2013
are conservative – at a reported level, we look for 2% yoy growth to €7.49bn (4%
currency neutral sales) with estimated flat sales growth on a reported basis for Q1
2013 (c.1% on a currency neutral basis).
We forecast the FY13 group gross margin will increase by 150bp yoy to 49.2% and
expect part of the gross margin erosion experienced through the wholesale chain
(with particular reference to Reebok India) to improve in 2013 supported by
ongoing benefits of a greater retail presence versus wholesale, improved sales and
regional mix. However, we are mindful of Asian labour cost inflation and FX risk
which will mitigate FY13 gross margin gains.
Next catalysts for adidas include Q113 trading, due 3 May 2013. Given the tough
comparison base, we expect management’s 2013 guidance of mid-single-digit sales
growth to be second-half-year-weighted and as a result, we view Q113E earnings
with caution given our (diluted) earnings estimate of €1.39, which implies 0.5%
earnings growth yoy (Bloomberg consensus at €1.42).
Global stock levels were well managed in 2012, up 1% on a currency-neutral basis
with perhaps the slight exception of the Russian retail channel. In our view,
sporting goods retailers with too much old inventory are clearly at incremental
markdown and gross margin risk especially within the backdrop of soft European
consumer demand and increasing political tension in Asia. If one were to look for
a Russian silver lining, adidas is well represented (c.65% today with a 70% target by
2015) within its retail (DOS) format, and therefore should be able to manage the
markdown risk more carefully as opposed to having a high wholesale exposure
where markdown rates are usually faster and higher versus retail.
77
adidas AG
Sporting Goods
Earnings momentum
Within the past six months, adidas has outperformed the SXXP pan-European
stocks 600 Index by 13.3% compared with Nike’s outperformance of the SXXP by
20.3% in US dollars (21.9% versus SXXP index in euros).
adidas seven-year absolute share price performance versus peers (rebased)
400
350
300
250
200
150
100
50
adidas
Jan 13
Apr 13
Jul 12
Oct 12
Jan 12
Apr 12
Jul 11
SXXP
Oct 11
Jan 11
Apr 11
Jul 10
Li Ning
Oct 10
Jan 10
Apr 10
Jul 09
Nike
Oct 09
Jan 09
Puma
Apr 09
Jul 08
Oct 08
Jan 08
Apr 08
Jul 07
Oct 07
Jan 07
Apr 07
Jul 06
Oct 06
Apr 06
0
Dax
Source: DataStream
adidas one-year absolute share price performance versus peers (rebased)
180
160
140
120
100
80
60
40
Mar 13
Feb 13
Jan 13
SXXP
Dec 12
Nov 12
Li Ning
Oct 12
Sep 12
Nike
Aug 12
Jul 12
Puma
Jun 12
May 12
Apr 12
Mar 12
Feb 12
Jan 12
Dec 11
adidas
Dax
Source: DataStream
We assess the driving factors behind recent share price performance by assessing
the impact that 12-month forward consensus earnings moves and market
multiples/re-rating (on an absolute and relative level) have had on adidas and its
immediate peer group.
According to our analysis, adidas has had the strongest consensus forward EPS
upgrade (+8.4%) compared with Nike and Puma (+7%) and Li Ning (-2%)
followed by a +4.5% re-rating on more ambitions sales growth and margin targets
to 2015.
We expect a tougher first half sales and profit growth evolution for adidas given
the tough comparison base (the London Olympic Games and the UEFA Euro
2012 football championships).
78
adidas AG
Sporting Goods
adidas 12-month forward consensus EPS moves and re-rating versus peers
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
16%
16%
4%
-5%
adidas
Nike
Puma
Li Ning
12m fwd. Consensus EPS Δ
Market Multiple Δ
Mkt. Relative Multiple Δ
Share price movt
Source: DataStream
adidas vs. Puma (seven-year absolute performance)
adidas vs. Nike (seven-year absolute performance)
250.0
300.0
200.0
250.0
200.0
150.0
150.0
100.0
100.0
50.0
-
50.0
-
Apr
06
Apr
07
Apr
08
Apr
09
adidas
Apr
10
Apr
11
Apr
12
Apr
13
Apr
06
Apr
07
Apr
08
Apr
09
adidas
Puma
Apr
10
Apr
11
Apr
12
Apr
13
Nike
Source: DataStream
adidas vs. Li Ning (seven-year absolute performance)
400.0
350.0
300.0
250.0
200.0
150.0
100.0
50.0
-
adidas vs. SXXP (seven-year absolute performance)
250.0
200.0
150.0
100.0
50.0
Apr
06
Apr
07
Apr
08
adidas
Apr
09
Apr
10
Apr
11
Li Ning
Apr
12
Apr
13
-
Apr
06
Apr
07
Apr
08
Apr
09
adidas
Apr
10
Apr
11
Apr
12
Apr
13
SXXP
Source: DataStream
79
adidas AG
Sporting Goods
adidas vs. Puma (seven-year relative performance)
adidas vs. Nike (seven-year relative performance)
300
120
250
100
200
80
150
60
100
40
50
20
0
Apr
06
Apr
07
Apr
08
Apr
09
Apr
10
Apr
11
Apr
12
Apr
13
0
Apr
06
Apr
07
Apr
08
adidas vs. Puma
Apr
09
Apr
10
Apr
11
Apr
12
Apr
13
adidas vs. Nike
Source: DataStream
adidas vs. Li Ning (seven-year relative performance)
400
350
300
250
200
150
100
50
0
adidas vs. SXXP (seven-year relative performance)
250
200
150
100
50
Apr
06
Apr
07
Apr
08
Apr
09
Apr
10
Apr
11
Apr
12
Apr
13
0
Apr
06
Apr
07
Apr
08
Apr
09
Apr
10
Apr
11
Apr
12
Apr
13
adidas vs. SXXP
adidas vs. Li Ning
Source: DataStream
adidas vs. DAX (seven-year absolute performance)
250.0
200.0
150.0
100.0
50.0
-
Apr
06
Apr
07
Apr
08
Apr
09
Apr
10
adidas
Dax
Apr
11
Apr
12
Apr
13
adidas vs. DAX (seven-year relative performance)
160
140
120
100
80
60
40
20
0
Apr
06
Apr
07
Apr
08
Apr
09
Apr
10
Apr
11
Apr
12
Apr
13
adidas vs. Dax
Source: DataStream
H ow we differ from consensus
Our proprietary analysis, which highlights the importance of innovation driving
Performance and Lifestyle market share and gross margin coupled with estimated
cost savings on the back of warehouse/distribution rationalisation – a part of
adidas’s strategy, which we believe will become a material earnings driver for FY14
– are key differentiating factors, hence our FY14 and FY15 EPS estimates of €5.7
and €7.1 respectively, c.6% and c.13% respectively ahead of Bloomberg consensus.
80
adidas AG
Sporting Goods
Berenberg adidas EPS vs. Bloomberg consensus
13%
14%
Berenberg adidas EBIT margin vs. Bloomberg
12%
120
10%
100
8%
6%
5%
80
6%
60
4%
40
2%
20
0%
FY13E
FY14E
133
140
FY15E
-
61
35
FY13E
EPS (%)
FY14E
FY15E
EBIT margin (bp)
Source: Bloomberg, Berenberg Bank estimates
Berenberg adidas sales vs. Bloomberg consensus
0%
-1%
-1%
-2%
-1%
-1%
-2%
-3%
FY13E
FY14E
Sales (%)
-2%
FY15E
Berenberg adidas gross margin vs. Bloomberg
160
140
120
100
80
60
40
20
-
139
109
91
FY13E
FY14E
FY15E
Gross margin (bp)
Short-term, we view 2013 as a transitional year and hence remain cautious about
sales and earnings accretion over this period. We acknowledge that some of the
weaker sales trends experienced in Q412 in Europe were in part due to the
anniversary of the sell-in of high-margin event-related products for the London
2012 Olympic and Paralympic Games (27 July to 11 August and 29 August to 9
September respectively) and the UEFA Euro football 2012 championships.
In addition, adidas group experienced negative impacts at Reebok (NFL licence
termination, the finalisation of the clean-up of Reebok India. The NHL lockout,
which extends into January 2013 ought to adversely affect Reebok-CCM Hockey,
hence Q113 headwinds persist, notwithstanding tough bases for comparison for
European emerging markets (Q1 2012: +15%), North America (+11%) and
Greater China (+26%).
Our FY13 group gross margin forecast of 49.2% is ahead of management’s
indicative range of 48.0% to 48.5%. We believe new technology such as adidas
Boost, a new foam cushioning material with a unique mid-sole cell structure
(created in partnership with BASF over the past three years) could become a
category killer for adidas within the running market over the next few years with
obvious potential to leverage into other sporting and lifestyle categories.
We expect other product innovations and core signature collection launches such
as Team Messi (football) and D Rose (basketball)) to strengthen adidas innovation
credibility and assist with the leverage of new Lifestyle product launches, which
generate a richer margin/sales mix.
81
adidas AG
Sporting Goods
Furthermore, we expect part of the gross margin erosion experienced through the
wholesale chain (with particular reference to Reebok India) to improve in 2013
supported by ongoing benefits of a greater retail presence versus wholesale,
improved sales and regional mix. However, we are mindful of Asian labour cost
inflation and FX risk which will mitigate FY13 gross margin gains.
82
adidas AG
Sporting Goods
adidas key assumptions and sensitivities (1)
Key financial and regional estimates
In €m
FY11
FY12
FY13E
FY14E
FY15E
13,322
+11.1%
14,883
+11.7%
15,395
+3.4%
16,399
+6.5%
17,455
+6.4%
5.5%
953
+6.6%
7.2%
1,185
+24.3%
8.0%
1,432
+20.8%
9.3%
1,712
+19.5%
10.4%
2,083
+21.7%
11.9%
20.7%
3,922
1,597
3,102
1,229
2,103
1,369
4,076
1,947
3,410
1,562
2,407
1,481
4,198
2,044
3,478
1,671
2,551
1,451
4,408
2,228
3,687
1,822
2,730
1,524
4,629
2,384
3,871
2,004
2,921
1,646
4.3%
7.0%
4.3%
8.7%
6.7%
3.6%
13,322
14,883
15,395
16,399
17,455
Western Europe
+10.7%
+3.9%
+3.0%
+5.0%
+5.0%
European Emerging Markets
+15.3%
+21.9%
+5.0%
+9.0%
+7.0%
North America
+10.6%
+9.9%
+2.0%
+6.0%
+5.0%
Greater China
+22.9%
+27.1%
+7.0%
+9.0%
+10.0%
+6.6%
+14.5%
+6.0%
+7.0%
+7.0%
Group sales
chg.
Group adj. EBIT
chg.
margin
Sales split by region
Western Europe
North America
Greater China
Other Asian Markets
Latin America
Total
12-15E CAGR
Reported %
Other Asian Markets
Latin America
+6.5%
+8.2%
-2.0%
+5.0%
+8.0%
+11.1%
+11.7%
+3.4%
+6.5%
+6.4%
Western Europe
+10.3%
+3.0%
+3.0%
+5.0%
+5.0%
+22.3%
+15.0%
+5.0%
+9.0%
+7.0%
North America
+15.3%
+2.0%
+4.0%
+6.0%
+5.0%
Greater China
+23.4%
+15.0%
+10.0%
+9.0%
+10.0%
Other Asian Markets
+5.1%
+7.0%
+9.0%
+7.0%
+7.0%
Latin America
+9.7%
+8.0%
+1.0%
+5.0%
+8.0%
+13.0%
+6.0%
+5.0%
+6.5%
+6.4%
EPS, diluted (€)
DPS (€)
2.93
1.00
3.78
1.35
4.72
1.68
5.73
2.05
7.07
2.52
Working capital
Stock turn
Creditors days
Debtor days
2,210
2.8x
51.7
43.7
2,384
3.1x
43.9
41.4
2,466
3.0x
43.9
41.4
2,627
3.0x
43.9
41.4
2,796
3.0x
43.9
41.4
91
448
864
1,366
2,061
Total
chg. currency neutral (cn)
Total
Net cash/ (debt)
23.2%
23.2%
83
adidas AG
Sporting Goods
adidas key assumptions and sensitivities (2)
Divisional estimates
In €m
Sales by distribution channel
Wholesale
Retail
Other Businesses
Total
Wholesale
Retail
Other Businesses
Total
FY11
FY12
FY13E
FY14E
FY15E
8,949
2,793
1,580
13,322
9,533
3,373
1,977
14,883
9,628
3,677
2,090
15,395
10,110
4,081
2,208
16,399
10,514
4,489
2,452
17,455
+11.0%
+19.7%
+12.7%
+2.0%
+14.0%
+17.0%
+3.0%
+11.0%
+4.4%
+5.0%
+11.0%
+5.7%
+4.0%
+10.0%
+11.0%
9,867
11,344
11,775
12,629
13,534
6.1%
+13.0%
+6.0%
+5.0%
+6.5%
12-15E CAGR
3.3%
10.0%
7.4%
5.5%
+6.4%
Sales by brand
adidas
Reebok
1,962
1,667
1,734
1,786
1,857
3.7%
TaylorMade-adidas Golf
1,044
1,344
1,357
1,439
1,504
3.8%
Rockport
261
285
288
302
311
3.0%
Reebok-CCM Hockey
188
243
241
244
249
0.8%
13,322
14,883
15,395
16,399
17,455
5.5%
+14.5%
+9.9%
+5.4%
+7.3%
+7.2%
Total
adidas
Reebok
Rockport
Reebok-CCM Hockey
+5.8%
-17.9%
+5.0%
+3.0%
+4.0%
+15.9%
+19.5%
+3.0%
+6.0%
+4.5%
+6.3%
+1.9%
+3.0%
+5.0%
+3.0%
+5.9%
+8.9%
+1.9%
+1.1%
+2.1%
+13.0%
+6.0%
+5.0%
+6.5%
+6.4%
6,242
5,733
1,347
6,922
6,290
1,671
7,268
6,542
1,585
7,850
6,934
1,616
8,478
7,315
1,662
7.0%
5.2%
-0.2%
13,322
14,883
15,395
16,399
17,455
5.5%
Footwear
+18.0%
+6.0%
+7.0%
+8.0%
+8.0%
Apparel
+8.0%
+4.0%
+5.0%
+6.0%
+5.5%
+10.0%
+17.0%
-3.3%
+1.9%
+2.9%
Total
Sales by product category
Footwear
Apparel
Hardware
Total
Hardware
Total
+13.0%
+6.0%
+5.0%
+6.5%
+6.4%
84
adidas AG
Sporting Goods
Executive summary
As the world’s second-largest global sporting goods player by revenue, we believe
adidas is well placed to benefit from long-term trends such as:
•
•
•
•
•
•
•
•
an ageing, health conscious demographic;
brand equity strength through the ongoing support of key sporting icons;
increased sporting investment by the media;
company-specific opportunities such as increased retail versus wholesale;
improved sales mix and incremental market share gains;
best in-class innovation;
benefits of global size and scale; and
material cost savings through ongoing sourcing, supply and distribution
efficiencies.
We believe adidas is well positioned to capitalise from its Route 2015 investment
strategy and that the group will its FY15E sales and EBIT margin targets of €17bn
and 11% respectively.
We forecast FY15E sales of €17.5bn, implying a 2010-15E CAGR of 7.8%. We
note that our three-year sales CAGR forecast (12-15E) is more conservative at
5.5%. Short-term, we are cautious as to FY13 sales performance given a tough
comparison base, negative FX and macro headwinds (Europe and South Korea).
In our view, the adidas group ought to exceed its 2015 EBIT margin target of
11%. Through combined initiatives such as increased retail sales penetration versus
wholesale, improved price/mix, best-in-class innovation and strong working
capital management on the back of sourcing, supply and distribution efficiencies,
we see upside risk to both gross margin (we forecast group gross margin to
increase by 290bp by 2015 to 50.6% compared with FY12 group gross margin of
47.7%) and EBIT margin targets. As a result, our FY15 group gross margin
estimate of 11.9% is 90bp ahead of management’s internal target.
such as Cambodia and Vietnam, where the cost of labour is lower relative to
China.
Proven track record
adidas’s nine-year sales, EBIT and diluted EPS CAGR rates (FY03-12) are solid
within the context of having acquired Reebok in 2006 and the financial crisis
85
adidas AG
Sporting Goods
(2008-10) at 9.4%, 10.3% and 11.4% respectively. We note that adidas paid $3.6bn
(€2.9bn assuming a dollar/euro FX rate of 0.8 or 1.5x sales) for Reebok in 2006
(completed on 31 January 2006). During its first year with the adidas group
(February to December), Reebok generated turnover of c.€2bn compared with
FY12 Reebok sales of €1.7bn.
Over the past six years (FY06-12), the adidas and TaylorMade-adidas Golf
(TMAG) brands have clearly outperformed relative to internal peers and while
management has a revitalised plan to re-invigorate and reposition the Reebok
brand under the House of Fitness branding, we are sceptical as to future Reebok
sales and profit generation, which is reflected in our five-year sales CAGR (FY1015E) Reebok estimates of -0.6%.
We believe FY12-15E growth ought to improve, especially after losses from the
Indian operations in 2012, hence our three-year Reebok sales CAGR (FY12-15E)
of 3.7%.
adidas six-year CAGR performance (2006-2012)
adidas group net sales, €m
Gross margin %
Adjusted EBIT, €m
Diluted adj. EPS
P/E at year end
DPS
FY06
10,084
44.6%
881
8.7%
2.25
16.8x
0.42
FY07
10,299
47.4%
949
9.2%
2.57
19.9x
0.50
FY08
10,799
48.7%
1,070
9.9%
3.07
8.8x
0.50
FY09
10,381
45.4%
508
4.9%
1.22
31.0x
0.35
FY10
11,990
47.8%
894
7.5%
2.71
18.0x
0.80
FY11
13,322
47.5%
953
7.2%
2.93
17.1x
1.00
FY12
14,883
47.7%
1,185
8.0%
3.78
17.8x
1.35
6-year CAGR
6.7%
Net sales by brand
adidas
Reebok
Rockport
Reebok-CCM Hockey
6,626
1,979
856
293
202
7,113
1,831
804
291
210
7,821
1,717
812
243
188
7,520
1,603
831
232
177
8,714
1,913
909
252
200
9,867
1,940
1,044
261
210
11,344
1,667
1,344
285
243
9.4%
-2.8%
7.8%
-0.5%
3.1%
5.1%
9.0%
We summarise our FY15E brand sales estimates and five-year CAGR evolution
below, which highlights our expectation of stronger brands sales and market share
evolution for adidas and TMAG brands versus Reebok.
In our view, faster sales growth at adidas and TMAG ought to result in margin
accretion given the structurally higher gross margins of both adidas and TMAG
brands versus Reebok.
For example, we note that adidas’s FY12 wholesale margin increased by 10bp yoy
to 42.1% compared with the Reebok wholesale gross margin, which declined by
290bp to 26.2%.
Within its retail division, the adidas gross margin declined by 150bp to 62.1%
(driven by FOB/currency, promotional activity and the devaluation of the Russian
Rouble) while the Reebok retail gross margin declined by 270bp to 55.1%.
We note that the FY12 group gross margin increased by 20bp to 47.7% supported
by structurally higher gross margins for both adidas and TMAG brands, supportive
of our future group gross margin evolution to 50.6% by FY15E.
86
adidas AG
Sporting Goods
Berenberg FY10-15E brand sales estimates vs. adidas management FY10-15E brand sales guidance
adidas
Reebok
TMAG & Other
Total
2010 2015 (Berenberg) Berenberg FY10-15 CAGR adidas updated adidas implied CAGR
8,714
13,534
9.2%
12,800
8.0%
1,913
1,857
-0.6%
2,000
0.9%
1,363
2,064
8.7%
2,200
10.0%
11,990
17,455
7.8%
17,000
7.2%
Barriers to entry through R&D, innovation and brand
recognition
Unlike the luxury goods operating model, which is founded on pricing power, high
barriers to entry and exclusive product ranges, the global sporting goods market
has a broader demographic base, which relies more heavily on sporting
events/icons to help promote awareness.
In our view, the sporting goods industry has a greater degree of demand/elasticity
as we note that in the US market, the core price point for trainers at $99.99 has not
changed over the past 20 years, despite increased advertising, marketing, research
and development and raw material costs.
Both industries share similarities in that luxury goods companies have long since
utilised “brand ambassadors” (successful sporting icons, actors, actresses and
politicians) to promote brands. Sporting goods players work with sporting icons in
order to develop leading-edge technology, adding value and brand credibility to
performance-related products.
Performance-related products tend to garner lower gross margins (performance
stores tend to take c.24 months to break even) compared with lifestyle-related
products, yet we believe it is crucial for sporting goods companies to continue to
invest in research and development and the marketing of performance products,
thereby creating a credible brand platform from which to launch more profitable
lifestyle brand collections.
Our proprietary innovation analysis highlights adidas as the best-in-class sporting
goods researcher and innovator. According to our research, adidas brand major
product launches as a percentage of adidas group sales were flat at c.40% (78% of
adidas brand sales), yet sales per new/major innovation (12 months or less)
increased by 64% to €632m at the brand level as of FY12.
We appreciate that the adidas group launches thousands of innovations within the
broader sense (new colour ways, small design changes); however, we believe it is
important to track the relationship and correlation between major new launches
and sales and margin growth.
87
adidas AG
Sporting Goods
adidas brand sales per major product launch (<12 months) €m
700
600
500
400
300
200
100
0
FY07
FY08
FY09
FY10
FY11
FY12
We highlight a few adidas brand major innovations in 2012-2013, ytd, which we
believe will assist with higher brand gross margins.
adidas brand examples of new/major product innovations <12 months
adipure Running shoe
range
Timing
Features
Segment
Q2-12
First natural running shoe collection,
consists of 3 shoes with varying heel
gradient for different levels of advancement
(adipure Motion, Gazelle, Adapt). Full
support with a polyurethane overlay. Socklike fit and dual-layer midsoles.
Footwear
miCoach Elite System
Jul-12
DryDye technology
(sustainable product
range)
Jul-12
D Rose 3.5
Mar-13
Energy Boost
Mar-13
Collaboration between adidas and major
leadue soccer's 19 teams. Sport datatarcking technology permitting coaches and
Equipment
fans to track the athletes' heart rates, speed,
field position, power and other
performance metrics in real-time.
The technology eliminates the need for
water in the dyeing process. Step to create
Apparel
more environmentally benign products. A
whole range of sustainable products.
Imrpoved performance - faster cuts and
Footwear
increased control. Designed to fit even
closer to the foot.
New cushioning material developed with
cooperation with BASF. Highest energy
return to the runner. Soft and reponsive
cushioning.
Footwear
88
adidas AG
Sporting Goods
Market share winner
We forecast that adidas group will increase its global market share by 560bp over
the next three years within a sporting goods market which we estimate is worth
c.€245bn as of FY12. We expect adidas to grow sales at 2.2x above global GDP
from FY12-15E, ahead of the global sporting goods average of 1.5x GDP (Puma:
1.6x; Nike: 2.8x).
Diversified product base and demographic
adidas group’s sporting goods products (footwear, apparel and hardware) are well
represented across a broad sporting goods and fashion base. As an example, we
highlight below the product diversity across the adidas and Reebok brands and
note that the example does not include TMAG where, in particular, through its
TaylorMade brand, adidas has amassed strong US market shares in both metal
woods (a market share of more than 40%) and irons (a market share of more than
30%) through the RocketBallz and Rockebladez respective brands.
adidas group brands are represented across key regions with a focus on key “attack
markets” such as Greater China, CIS/Russia and North America (adidas is underrepresented compared with Nike in the North American market).
adidas and Reebok category focus
We highlight the FY12 regional sales splits below and forecast Greater Chinese and
other Asian markets growth rates above the group average to represent 11.5% and
16.7% of sales respectively by FY15E.
We appreciate that local Chinese sporting goods players such as Li Ning and Anta
Sports continue to be negatively affected by too much stock in the channel and
have commented that it could take another 12 to 18 months to clean out
excess/old stock. Downside risk to adidas sales and margin performance in
Greater China would be related to aggressive discounting in order to clear the
stock backlog.
In our view, inventory issues associated with the Chinese sportswear market date
back to the Beijing Olympics in 2008 (it took adidas c.18 months to clean its
Chinese stock channel). We note that TPG Capital’s investment in Li Ning
(January 2012) and its subsequent turnaround strategy is in part focused on
cleaning up its working capital profile and implementing a more strategically sound
stock management system.
89
adidas AG
Sporting Goods
Our model reflects a slower pace of Greater Chinese sales growth for adidas group
in FY13 of 10% on a currency neutral basis versus 15% as of FY12. We expect
new product ranges, an improved sales mix and increased retail space to positively
affect growth allowing for a more conservative underlying volume assumption (low
single-digit sales growth).
adidas group regional mix (FY12)
Western
Europe,
27%
European
Emerging
Markets,
13%
Latin
America,
10%
Other
Asian
Markets,
16%
North
America,
23%
adidas group regional mix (FY15E)
Western
Europe,
27%
European
Emerging
Markets,
14%
Latin
America,
9%
Other
Asian
Markets,
17%
Greater
China,
10%
North
America,
22%
Greater
China,
11%
Supply chain optimisation and distribution focus
We believe one the core future EBIT margin drivers will come from the adidas
group’s accelerated focus on the rationalisation of legacy distribution centres,
improved SAP functionality.
We forecast central administration costs as a percentage of sales to fall 60bp to
7.0% (FY12-15E) and logistics related costs as a percentage of sales to decline by
10bp to 4.9% (FY12-15E) after a 20bp short-term ramp in costs in FY13 as key
new central distribution centres (CDCs) in Western Europe such as Osnabrück in
Germany are completed.
By 2015, the CDC will be capable of storing 35m pieces during peak times and will
handle a throughput of more than 100m pieces annually for the adidas, Reebok
and Rockport brands across all channels. A second facility will also be completed
in Russia during 2013.
adidas group costs as a percentage of sales* – estimated decline of 110bp (FY12-15E)
as a % of sales
Sales working budget
Marketing working
budget
Marketing overhead
Sales force
Logistics
R&D
Central &
administration
Total
FY08
2.8%
FY09
2.3%
FY10
2.6%
FY11
2.5%
FY12
2.0%
FY13E
2.0%
FY14E
2.0%
FY15E
2.0%
10.5%
3.5%
10.9%
5.2%
0.8%
9.9%
3.4%
12.5%
5.6%
0.8%
10.7%
3.2%
12.5%
5.1%
0.9%
10.2%
3.0%
12.6%
5.1%
0.9%
10.1%
3.0%
12.7%
5.0%
0.9%
10.1%
3.0%
12.6%
5.2%
0.9%
10.1%
3.0%
12.5%
5.1%
0.9%
10.0%
3.0%
12.4%
4.9%
1.0%
6.9%
40.5%
7.8%
42.3%
7.1%
42.1%
7.5%
41.8%
7.6%
41.3%
7.6%
41.5%
7.3%
41.1%
7.0%
40.2%
Source: Berenberg Bank estimates, company data, *includes depreciation
At the group level, we expect operating expenses as a percentage of sales to reduce
by 110bp from FY12 to 40.2% in FY15 (includes depreciation). Coupled with
improved price/mix, increased retail sales and new innovations, which tend to
garner higher gross margins during the first 12 months, we look for an incremental
€689m of EBITDA from FY13E to FY15E.
90
adidas AG
Sporting Goods
We summarise the key initiatives for adidas global operations below.
adidas group five strategic priorities for global operations
Strategic priorities
Ensuring cost competitiveness
Providing industry-leading availability
Enabling later ordering
Supporting the Group's growth projects
Modernising the Group's infrastructure
Specific goals
Reduce product and supply chain costs
Implemented through strategic initiatives
-Optimise product creation through efficient
material and colour selection
-Increase the level of automation in the
manufacturing processes
-Pool supply chain activities at a central
level
Enhance existing logistics services to create -Offer tailored replenishment models to
a flexible and cost-efficient supply chain
customers, using improved planning
processes and systems
-Develop flexible planning and product
models
-Plan and build inventory buffers at
different locations in the supply chain
Allow customers to order products later, ie -Reduce production lead times for footwear
closer to the time of sale
and apparel to 60 days
-Establish a regional source base
Support the company's Route 2015 priorities -Build fast-fashion creation, sourcing and
supply chain management capabilities
-Further roll-out of processes and systems
-Offer short lead time production models
Build the required operational backbone to -Consolidate legacy systems and
support the Group's growth plans
distribution structures
-Build state-of-the-art systems, processes
and distribution facilities
Cash rich, market share winner and attractive valuation
As the second-largest sporting goods company in the world, we expect adidas sales
growth to continue above the market average (2.2x global GDP vs. 1.5x market
average). In our view, adidas ought to improve its operational leverage via size and
scale efficiencies in terms of production, increased retail penetration and improved
mix. Distribution centre rationalisation and ongoing investments in research and
development and innovation are also key drivers of margin growth to FY15.
We forecast net cash to increase in FY13 to €864m compared with €448m in FY12
(FY11 €91m). We look for an improved sales mix, lower commodity/raw material
cost pressure, partially offset by a negative impact on hedging and structurally
higher Chinese labour costs to drive FY13E gross margin higher by 150bp yoy to
49.2%.
Moreover, we remain cautious on the twelve month evolution of operating
expenses as a percentage of sales (+20bp to 41.5% – includes depreciation) as new
regional/centralised distribution centres are completed in Germany and Russia.
Our FY13 capital expenditure estimate is within management’s guidance of
€500m-550m at €525m. We remain conservative about our working capital
outflow assumptions for FY13E and outer years. We expect inventory to build as
the adidas group increases its exposure to directly owned stores (DOS) versus
wholesale. We forecast retail as a percentage of sales to increase by 120bp to 23.9%
in FY13, reaching 25.7% by FY15E, an implied increase of 300bp versus FY12
(22.7%).
On a non-cash-adjusted basis, and at the current share price level of €75.9, adidas
trades on FY13E and FY14E P/Es of 16.1x and 13.2x respectively compared with
91
adidas AG
Sporting Goods
its 10-year average P/E of more than 18x and seven-year historical average of
c.17x following the Reebok acquisition in 2006).
adidas seven-year historical average P/E (FY06-12)
40.0x
35.0x
30.0x
25.0x
20.0x
15.0x
10.0x
5.0x
0.0x
Mar-13
Jul-12
Nov-12
Mar-12
Nov-11
Jul-11
Mar-11
Nov-10
Jul-10
Mar-10
Jul-09
Nov-09
Mar-09
Nov-08
Jul-08
Mar-08
Nov-07
Jul-07
Mar-07
Jul-06
Nov-06
Mar-06
16.9x
adidas
Source: DataStream, Berenberg Bank estimates
On a cash-adjusted basis, our current and one-year forward estimated multiples fall
to 15.2x and 12.1x respectively. We believe our €95 target price is conservative
given our forecast of double-digit three-year EPS and DPS CAGR (FY12-15E) of
c.23% respectively.
Furthermore, we expect the adidas group’s post-tax ROIC to increase by 420bp to
10.7% in FY13E and to reach 12.4% by FY15E.
Our price target, based on our P/E analysis and driven by earnings and cash flow
forecasts, implies FY13E and FY14E P/Es of 20.1x and 16.6x respectively and is
supported by our DCF (€98).
On a cash-adjusted basis, adidas trades on FY13E and FY14E P/Es of 19.3x and
15.4x respectively. On a PEG basis, adidas trades at 0.5x versus Puma at 1.7x, Nike
at 1.5x, Amer Sports at 0.7x and the weighted (by market capitalisation) average
PEG of 1.3x.
Sales growth
EBITDA growth
EBIT growth
2013E
2014E
2015E
2013E
2014E
2015E
2013E
2014E
2015E
1.4%
7.1%
6.3%
21.7%
20.6%
-16.3%
10.0%
5.7%
-9.4%
5.5%
7.9%
7.8%
20.5%
21.4%
3.4%
7.2%
5.0%
7.2%
4.8%
6.9%
9.2%
20.4%
21.5%
9.0%
4.6%
4.2%
12.3%
20.9%
10.9%
16.7%
24.3%
9.9%
-15.9%
14.7%
35.9%
n.m.
11.0%
12.1%
9.6%
23.9%
30.0%
3.8%
10.8%
11.0%
249.9%
10.0%
8.2%
12.8%
22.6%
21.4%
11.7%
3.0%
7.1%
45.1%
5.1%
12.1%
15.1%
26.6%
11.6%
-15.3%
16.8%
50.5%
n.m.
13.0%
11.9%
11.2%
25.4%
26.5%
2.7%
12.9%
14.0%
n.m.
9.7%
NA
9.4%
NA
25.7%
12.5%
NA
9.2%
145.5%
8.4%
9.6%
9.4%
13.1%
15.1%
11.3%
13.4%
13.9%
6.0%
Total sector median
6.3%
7.2%
9.0%
15.7%
11.0%
11.7%
13.6%
13.0%
11.1%
4.5%
-45.8%
3.4%
-58.9%
6.7%
-30.9%
6.5%
-32.4%
5.9%
-36.8%
6.4%
-31.6%
16.3%
24.3%
43.6%
233.4%
16.3%
7.8%
17.4%
14.7%
14.4%
27.3%
19.4%
71.0%
17.0%
27.2%
20.8%
55.7%
18.6%
33.9%
19.5%
40.8%
15.4%
157.0%
21.7%
262.5%
Puma
Nike
VF Corp
Under Armour
Lulu Lemon
Anta Spots
Asics
Amer Sports
Li Ning
adidas
92
adidas AG
Sporting Goods
Net debt/ EBITDA
Puma
Nike
VF Corp
Under Armour
Lulu Lemon
Anta Spots
Asics
Amer Sports
Li Ning
Total sector median
adidas
EBIT margin
EBITDA margin
2013E
-1.2x
-1.0x
0.4x
-1.0x
-12.1x
-3.3x
-0.3x
1.9x
3.0x
-1.8x
2014E
-1.5x
-0.9x
0.1x
-1.1x
-13.2x
-3.4x
-0.6x
1.6x
0.5x
-2.0x
2015E
-1.7x
NA
0.0x
NA
-15.9x
-3.1x
-0.6x
1.3x
0.2x
-0.7x
2013E
11.3%
14.9%
16.8%
14.0%
28.0%
19.9%
10.3%
9.5%
2.1%
16.1%
2014E
11.9%
15.5%
17.0%
14.4%
29.9%
19.9%
10.6%
10.0%
6.7%
16.8%
2015E
12.5%
15.7%
17.6%
14.7%
29.9%
20.4%
10.5%
10.3%
8.7%
17.0%
2013E
9.2%
13.3%
14.6%
11.8%
25.5%
18.5%
8.4%
7.7%
-3.3%
14.2%
2014E
9.9%
13.8%
15.0%
12.3%
26.5%
18.4%
8.8%
8.4%
2.6%
14.8%
2015E
10.3%
NA
15.1%
NA
27.5%
19.0%
NA
8.8%
5.7%
9.5%
-1.0x
-0.9x
-0.6x
14.0%
14.4%
14.7%
11.8%
12.3%
12.7%
-0.4x
-79.2%
-0.5x
-72.2%
-0.6x
-71.1%
-0.7x
-65.3%
-0.6x
-16.2%
-0.9x
20.9%
10.9%
-32.5%
11.1%
-30.8%
11.9%
-29.2%
12.3%
-26.7%
12.8%
-24.7%
13.8%
-19.1%
8.9%
-37.4%
9.3%
-34.7%
9.9%
-33.1%
10.4%
-29.6%
10.8%
13.3%
11.9%
25.3%
adidas – market price multiples Bloomberg and Berenberg estimates vs. peers
PE
EV/ EBITDA
EV/ EBIT
EV/ sales
2013E
2014E
2015E
2013E
2014E
2015E
2013E
2014E
2015E
2013E
2014E
2015E
Puma
Nike
VF Corp
Under Armour
Lulu Lemon
Anta Spots
Asics
Amer Sports
Li Ning
16.6x
21.0x
15.7x
38.4x
34.7x
12.9x
21.9x
13.4x
n.m.
21.8x
14.6x
18.2x
13.9x
30.4x
27.3x
12.7x
19.6x
11.5x
47.4x
18.9x
13.2x
16.1x
12.3x
23.9x
22.2x
11.5x
16.7x
10.5x
15.6x
16.1x
8.2x
12.8x
10.3x
18.0x
21.1x
6.6x
12.1x
9.1x
32.8x
13.1x
7.4x
11.4x
9.4x
14.6x
16.2x
6.4x
11.0x
8.2x
9.4x
11.3x
6.7x
10.5x
8.4x
11.9x
13.3x
5.7x
10.6x
7.6x
6.5x
10.1x
10.1x
14.3x
11.9x
21.3x
23.1x
7.1x
14.9x
11.1x
-20.2x
14.5x
8.9x
12.7x
10.7x
17.0x
18.3x
6.9x
13.2x
9.8x
24.3x
12.9x
8.1x
NA
9.8x
NA
14.5x
6.2x
NA
9.0x
9.9x
8.5x
0.9x
1.9x
1.7x
2.5x
5.9x
1.3x
1.2x
0.9x
0.7x
2.2x
0.9x
1.8x
1.6x
2.1x
4.8x
1.3x
1.2x
0.8x
0.6x
2.0x
0.8x
1.6x
1.5x
1.7x
4.0x
1.2x
1.1x
0.8x
0.6x
1.8x
Total sector median
18.8x
18.2x
15.6x
12.1x
9.4x
8.4x
11.9x
12.7x
9.4x
1.3x
1.3x
1.2x
17.1x
-21.7%
16.1x
-26.2%
14.2x
-24.5%
13.2x
-29.7%
12.2x
-24.1%
10.7x
-33.4%
9.2x
-29.9%
9.0x
-31.5%
7.9x
-30.1%
7.7x
-32.3%
6.9x
-31.8%
6.4x
-36.7%
11.2x
-22.8%
10.8x
-25.9%
9.5x
-26.5%
9.0x
-30.1%
8.2x
-3.5%
7.4x
-12.9%
1.0x
-54.5%
1.0x
-54.4%
0.9x
-52.3%
0.9x
-52.1%
0.9x
-49.9%
0.9x
-50.0%
adidas
adidas – target price multiples Bloomberg and Berenberg estimates vs. peers
PE
EV/ EBITDA
EV/ EBIT
EV/ sales
Puma
Nike
VF Corp
Under Armour
Lulu Lemon
Anta Spots
Asics
Amer Sports
Li Ning
2013E
17.2x
21.5x
16.3x
40.9x
37.4x
12.9x
20.2x
14.8x
n.m.
22.6x
2014E
15.1x
18.7x
14.5x
32.3x
29.5x
12.7x
18.2x
12.7x
47.4x
19.5x
2015E
13.7x
16.5x
12.8x
25.4x
23.9x
11.5x
15.5x
11.6x
15.6x
16.7x
2013E
8.5x
13.1x
10.7x
19.2x
22.8x
5.7x
11.3x
9.8x
28.9x
13.6x
2014E
7.7x
11.7x
9.8x
15.5x
17.5x
5.5x
10.2x
8.8x
8.3x
11.7x
2015E
7.0x
10.8x
8.7x
12.6x
14.5x
4.9x
9.9x
8.3x
5.7x
10.5x
2013E
10.5x
14.7x
12.3x
22.7x
25.0x
6.1x
13.8x
12.0x
n.m.
15.2x
2014E
9.3x
13.1x
11.1x
18.1x
19.8x
5.9x
12.2x
10.6x
21.5x
13.3x
2015E
8.4x
NA
10.1x
NA
15.7x
5.3x
NA
9.7x
8.7x
8.8x
2013E
1.0x
2.0x
1.8x
2.7x
6.4x
1.1x
1.2x
0.9x
0.6x
2.3x
2014E
0.9x
1.8x
1.7x
2.2x
5.2x
1.1x
1.1x
0.9x
0.6x
2.0x
2015E
0.9x
1.7x
1.5x
1.9x
4.3x
1.0x
1.0x
0.8x
0.5x
1.8x
Total sector median
18.7x
18.2x
15.5x
11.3x
9.8x
8.7x
13.0x
12.2x
9.2x
1.2x
1.1x
1.0x
18.5x
-18.2%
20.1x
-10.9%
15.4x
-21.0%
16.6x
-15.1%
13.3x
-20.6%
13.4x
-19.5%
10.0x
-26.5%
11.2x
-17.2%
8.6x
-26.6%
9.6x
-18.2%
7.5x
-28.4%
8.0x
-23.4%
12.2x
-19.7%
13.5x
-11.3%
10.3x
-22.8%
11.3x
-15.4%
8.9x
1.3%
9.3x
5.3%
1.1x
-52.6%
1.3x
-45.3%
1.0x
-50.2%
1.2x
-42.5%
1.0x
-47.6%
1.1x
-39.8%
adidas
93
adidas AG
Sporting Goods
Treading carefully into 2013
We believe 2013 represents a transitional year for adidas. Our FY13E sales and
earnings growth assumptions are lower relative to our FY14 and FY15 estimates as
we factor a negative FX translational impact of c.2% and appreciate that the H113
comparison base is tougher at +11% on a currency neutral basis compared with
+3% for the second half of the year.
Our assumptions for the first half of 2013 are conservative. At a reported level, we
look for 2% yoy growth to €7.47bn (c.3% currency-neutral sales growth) with
estimated flat sales growth on a reported basis for Q113 (c.1% on a currencyneutral basis).
We highlight adidas management’s FY13 guidance for sales, gross and EBIT
margin, earnings, capital expenditure, store base and gross borrowings below.
Management 2013 guidance vs. Berenberg estimates
adidas group
Wholesale
Retail segment
Other businesses
Rockport
Reebok-CCM hockey
Outlook 2013
increase at low-single-digit sales %
increase at high-single-digit to low d-d %
increase at mid to high-single-digit sales %
increase at low double-digit sales %
Gross margin
Operating margin
48% to 48.5%
approaching 9%
Capital expenditure
Gross borrowings
€500m-550m
further reduction
EPS
Shareholder value
further increase
Berenberg FY13E
5.0%
3.0%
11.0%
4.4%
3.0%
3.0%
1.9%
49.2%
9.3%
Moderate increase expected
€525m
net cash €864m
-0.50x
€ 4.72
DPS +25% to €1.68
We are cautious heading into Q113 trading (figures due on 3 May 2013). Given the
tough comparison base, we expect management’s 2013 guidance of mid-singledigit sales growth to be second-half year weighted and as a result, we see downside
risk to Q113 diluted earnings given our estimate of €1.39, which implies 0.5%
earnings growth yoy and is below Bloomberg consensus of €1.42.
We anticipate another tough quarter for the Reebok brand (-8% currency-neutral
sales) against a tough quarter last year (having terminated the NFL contract) while
Reebok-CCM Hockey is expected to be impacted by the timing of the NHL
lockout, which normalises from Q213 onwards.
94
adidas AG
Sporting Goods
Acquisitions and divestments
In the table below, we list acquisitions and divestments made by adidas group from
2000 to 2012. The largest acquisition made by adidas group was Reebok in 2006
for $3.6bn.
During 2012, CEO Herbert Hainer indicated that adidas may dispose of its
Reebok CCM-Hockey division but after several offers were made by third parties,
management has decided not to dispose of the business on the premise that a) the
initial offers were too low and b) that it may be able to improve the fortunes of the
division internally prior to reviewing the division for sale again. Reebok CCMHockey generated €243m of revenue in FY12.
adidas acquisition and divestment history (2000 to 2012)
2012
2011
2009
2008
2007
2006 2005
2004
2002
2001
2000
FY
Date
Target
Acquired/ Effective Description
(divested) stake
09 Mar 00
adidas Portugal SA
49%
08 Feb 01
01 Jan 02
01 Jan 02
15 Jan 02
01 Jul 02
01 Dec 02
26 Mar 04
04 Jun 04
30 Jun 04
04 Oct 04
31 Dec 04
01 Jun 05
30 Sep 05
16 Jan 06
31 Jan 06
01 Jan 07
01 Jan 07
09 Nov 07
Cé SARL (Cliché S.A.S.)
Sportgoods
A/S (adidas Danmark A/S)
adidas Italy
SC IMPORT ApS (Salomon Danmark ApS),
Arc’Teryx Equipment Inc.
Bayern Munich**
Maxfli
Spor Malzemeleri Satis ve Pazarlama A.S.
Valley Apparel Company
Maersk Ewals Logistics B.V.
adidas Malaysia Sdn. Bhd
erima Sportbekleidungs GmbH
Taylor Made Golf
Salomon
adidas India Marketing Private Ltd
Reebok Int Ltd.
Suomi OY, Helsinki
adidas Hellas AE
Mitchell & Ness
03 Jan 08
100%
Portugese JV
Price net
of cash
(€m)
Price
(€m)
Total price
in LC
na
na
na
100%
100%
Skatebording
1
1
€1m
100%
100%
Danish distributor and licensee
19
19
€19m
50%
100%
100%
10%
100%
49%
100%
100%
40%
-51%
21%
-100%
8.6%
100%
50%
23%
100%
100%
100%
100%
10%
100%
100%
100%
100%
100%
0%
99.9%
0%
100%
100%
100%
72%
100%
70
2
18
77
na
10
5
5
3
-0.4
30
-497
2
2432
1.2
6
2
70
2
18
77
na
10
5
5
3
-0.4
30
-497
2
2971
1.2
6
2
€70m
€2m
€18m
€77m
na
€10m
€5m
€5m
€3m
-€0.4m
€30m
-€497m
€2m
$3,600m
€1.2m
€6m
€2m
Saxon Athletic Manufacturing
100%
100%
2
2
CAD4.6m
10 Jan 08
11 Feb 08
adidas Hellas AE
Maxfli
23%
-100%
95%
0%
6
-13
6
-13
€6m
-€13m
01 Apr 08
Reebok Productos Esportivos Brasil Ltda.
99.99%
99.99%
2
2
BRL 6m
01 Sep 08
Textronics Inc
100%
100%
25
25
$35m
20 Nov 08
01 Jan 09
Ashworth
adidas Finance Spain SA
100%
25%
100%
25%
Italian JV
Danish distributor and licensee
Outdoor
Football club
Golf
Turkish subsidiary
Licensee
Warehouse service provider in NL
Malaysian subsidiary
Sportswear
Golf
Sports equipment
Marketing company
Sporting goods
Finnish subsidiary
Greek subsidiary
Sportswear (vintage sports)
Team uniforms for professional
and amateur teams in N. America.
Greek subsidiary
Golf
Marketing company for Reebok
(Brazil)
Development of sensors for
fitness monitoring
Golf
Reebok subsidiary
21
12
23
12
$30m
€12m
01 Jan 09
Life Sport Ltd
51%
51%
adidas marekting company in Israel
5
5
ILS 25.6m
23 Jan 09
adidas Hellas AE
5%
100%
16 Feb 09
Bones in Motion
100%
100%
Greek subsidiary
Sports-related software
development
03 Nov 11
Stone Age Equipment Inc (Five Ten)
100%
100%
30 Mar 12
GEV Grundstueckgesselschaft
Herzogenaurach mbH & Co. KG
10%
05 Apr 01
01 Jun 12
31 Aug 12
30 Sep 12
Adams Golf
adidas Budapest Kft
Immobilieninvest und Betriebsgesselschaft
Herzo-Base GmbH & Co. KG
1
1
€1m
4
4
$5m
Outdoor action sprots
20
20
$38m
100%
German subsidiary
7
7
€7m
100%
15%
100%
100%
Golf
Hungarian subsidiary
57
1
71
1
$89m
€1m
-90%
10%
na
-14
-14
-€14m
95
adidas AG
Sporting Goods
Company description
adidas Group is a leading sporting goods company within the design and distribution
(wholesale, retail & eCommerce) of footwear, apparel and accessories. adidas Group brands
include adidas, Reebok, TaylorMade-adidas Golf, Rockport and Reebok-CCM Hockey.
SWOT
Strengths
Strong global brands supported by an
improving control over the distribution
network, core competence in sport performance
. Further opportunities to reduce the cost base,
increase DOS and drive operating leverage.
Significant cash flow generation
Opportunities
Further expansion of directly owned stores
eCommerce expansion, particularly in Asia
and North America. Gross margin uplifts via
product mix, supply chain and distribution
improvements. Leverange on FIFA World Cup
in 2014. Expansion in Golf and Basketball,
notably in North America
Weaknesses
Susceptible to mark down risk, commodity cost
and Chinese labour cost pressure. Too high
level of Performance weighted product at a
lower gross margin vs. Lifestyle. Reebok brand
sales and market share risk. Relatively small
presence in key North American market vs. its
main competitor
Threats
Exposure to weaker consumption trends and
consumer confidence. General fashion trends
and misjudgement of consumer needs and
tastes are also risks. Increasing competition in
the football segment
Sales by division, FY12
Consensus estimates
Apparel,
42.3%
Hardware,
11.2%
30
25
20
15
10
5
0
BUY
HOLD
SELL
Footwear,
46.5%
Source: Bloomberg
96
adidas AG
Sporting Goods
Industry competitive position
Average score:
3
3
Supplier power
Raw materials account for c.65% of group COGS and adidas is exposed to prices of rubber,
cotton, polyester and those which closely corelates with oil price. As adidas' ordering process
and prices negotiations usualy take place aroung six months in advance of production, its
sourcing function has visibility and reaction time to reflect sharp increases in input costs in its
planning
3
Barriers to entry
New designers/ companies enter the industry on a regular basis. However, significant
investments in product innovation, marketing and distribution over a long period is necessary
to establish a brand.
4
Customer power
Relatively higher for chains vs. mom & pop shops. Howecer, customer power decreases as
sporting goods brands increase their exposure to retail and eCommerce.
1
Substitute products
Most of sporting goods products have subtitutes designed by competitors. There is a significant
risk that counterfeit or copied products and parallel distribution could damage brand image.
2
Rivalry
The marketplace is highly competitive. In the sporting goods sector, competition is on price,
innovation, brand image, people and location.
adidas historical PE
40.0x
35.0x
30.0x
25.0x
20.0x
15.0x
16.9x
10.0x
Jul-12
Nov-12
Mar-13
Dec-12
Mar-13
Mar-12
Jun-12
Sep-12
Jul-11
Nov-11
Mar-11
Jul-10
Nov-10
Mar-10
Jul-09
Nov-09
Mar-09
Jul-08
Nov-08
Mar-08
Nov-07
Jul-07
Mar-07
Nov-06
Mar-06
0.0x
Jul-06
5.0x
adidas
adidas and Index performance FY09-12
250
200
150
100
50
adidas
Mar-12
Sep-11
Dec-11
Jun-11
Dec-10
Mar-11
Sep-10
Jun-10
Mar-10
Dec-09
Jun-09
Sep-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
0
Dax
Source: Bloomberg
97
adidas AG
Sporting Goods
adidas group
16,000
7.5%
10.7%
8.7%
12,000
10,084
8,000
9.2%
10,299
9.9%
10,799
4.9%
7.2%
11,990
8.0%
14,883
13,322
12.0%
10.0%
10,381
8.0%
6.0%
6,636
4.0%
4,000
2.0%
0
FY05
FY06
FY07
FY08
adidas Group net sales, €m
adidas wholesale split by, FY12
Western
Europe,
27%
FY10
FY11
0.0%
FY12
adidas retail split by category, FY12
11%
European
Emerging
Markets,
13%
Latin
America,
10%
Other
Asian
Markets,
16%
FY09
47%
42%
North
America,
23%
Greater
China,
10%
Footwear
Apparel
Hardware
adidas sales evolution by distribution channel, FY08-12
98
adidas AG
Sporting Goods
adidas (76% of FY12 revenues, €m)
12,000
49.0%
11,344
48.5%
9,867
10,000
7,821
8,000
48.0%
8,174
7,520
48.6%
6,000
47.5%
47.1%
47.0%
47.2%
47.1%
46.1%
46.5%
4,000
46.0%
45.5%
2,000
45.0%
0
FY08
FY09
FY10
FY11
adidas brand sales, €m
gross margin
adidas wholesale split by category, FY12
adidas retail split by category, FY12
26%
74%
34%
66%
adidas Sport Style
44.5%
FY12
adidas Sport Style
Key adidas brands
Division
Key brands
adidas
adidas Originals
adidas
Targeted markets
Football, basketball, running,
training, outdoor
Streetwear and lifestyle fashion
adidas Sport Style
Y-3, Porsche Design Sport, adidas
SLVR
Streetwear and lifestyle fashion via
a multi-brand strategy
100%
80%
Adidas sales split by category and distribution channel
6%
7%
15%
16%
16%
18%
60%
15%
16%
14%
10%
18%
19%
53%
55%
40%
63%
59%
20%
0%
FY09
FY10
FY11
FY12
99
adidas AG
Sporting Goods
Reebok brand (11% of FY12 revenues, €m)
2,500
36.4%
2,000
1,717
36.3%
35.9%
37.0%
36.0%
1,962
1,913
31.8%
35.9%
1,667
1,603
35.0%
34.0%
1,500
33.0%
1,000
32.0%
31.0%
500
30.0%
0
FY08
FY10
FY09
FY11
FY12
29.0%
gross margin
Reebok brand sales, €m
Reebok sales split by distribution channel, FY12
Constant currency sales evolution, FY09-12
+23%
+25%
+14%
+12%
+15%
25%
75%
+7%
+18%
+12%
+3%
+5%
-5%
-15%
Reebok retail sales
Reebok wholesale sales
-10%
FY09
FY10
Reebok wholesale sales
FY11
FY12
Reebok retail sales
Reebok brand strategy
100
adidas AG
Sporting Goods
Financials
Profit and loss account
adidas P&L FY10-15E
In €m
Sales
chg.
CoGS
% of sales
Gross profit
margin
Royalty and commission
Other operating income
Operating expenses
% of sales
EBITDA
margin
Depreciation
Impairment losses
% of sales
Operating incom e
margin
Operating incom e, adjusted
margin
Financial income
Financial expenses
Financial result
Earnings before taxes
chg.
Earnings before taxes adjusted
Income taxes
Tax rate
Income taxes, adjusted
Tax rat, adjusted
Minority interest
Net incom e
Net incom e adjusted
EPS
EPS adjusted diluted
chg.
FY10
11,990
+15.5%
(6,260)
52.2%
5,730
47.8%
100
110
(4,781)
39.9%
1,159
9.7%
(265)
FY11
13,322
+11.1%
(6,993)
52.5%
6,329
47.5%
93
98
(5,321)
39.9%
1,199
9.0%
(246)
1.8%
953
7.2%
953
7.2%
31
(115)
(84)
869
+7.8%
869
(261)
30.0%
(327)
37.6%
5
613
613
2.93
2.93
+8.1%
FY12
14,883
+11.7%
(7,780)
52.3%
7,103
47.7%
105
127
(5,875)
39.5%
1,195
8.0%
(275)
(265)
1.8%
920
6.2%
1,185
8.0%
36
(105)
(69)
851
-2.1%
1,116
(327)
38.4%
(327)
29.3%
2
526
791
2.52
3.78
+29.1%
2.2%
894
7.5%
894
7.5%
25
(113)
(88)
806
+125.1%
806
(238)
29.5%
(327)
40.6%
(1)
567
567
2.71
2.71
+131.5%
Weighted average shares outstanding (mn)
Weighted average shares outstanding, diluted (mn)
DPS
DPS growth
Pay out ratio
FY13E
15,395
+3.4%
(7,819)
50.8%
7,576
49.2%
109
132
(6,101)
39.6%
1,716
11.1%
(284)
FY14E
16,399
+6.5%
(8,210)
50.1%
8,189
49.9%
117
137
(6,429)
39.2%
2,014
12.3%
(303)
FY15E
17,455
+6.4%
(8,620)
49.4%
8,835
50.6%
124
143
(6,696)
38.4%
2,405
13.8%
(322)
1.8%
1,432
9.3%
1,432
9.3%
1.8%
1,712
10.4%
1,712
10.4%
1.8%
2,083
11.9%
2,083
11.9%
(54)
1,378
+61.9%
1,378
(393)
28.5%
(393)
28.5%
2
988
988
4.72
4.72
+24.8%
(38)
1,673
+21.4%
1,673
(477)
28.5%
(477)
28.5%
2
1,199
1,199
5.73
5.73
+21.4%
(18)
2,065
+23.4%
2,065
(589)
28.5%
(589)
28.5%
2
1,479
1,479
7.07
7.07
+23.4%
209.216
209.216
209.216
209.216
209.216
209.216
209.216
209.216
209.216
209.216
209.216
209.216
0.80
135.3%
29.5%
1.00
25.0%
34.1%
1.35
35.0%
35.7%
1.68
24.8%
35.7%
2.05
21.4%
35.7%
2.52
23.4%
35.7%
101
adidas AG
Sporting Goods
Balance sheet
adidas balance sheet FY10-15E
In €m
Cash and cash equivalents
Short-term financial assets
Accounts receivable
Other current financial assets
Inventories
Income tax receivables
Other current assets
Assets classified as held for sale
Total current assets
FY10
1,156
233
1,667
197
2,119
71
390
47
5,880
FY11
906
465
1,595
289
2,502
77
469
25
6,328
FY12
1,670
265
1,688
192
2,486
76
489
11
6,877
FY13E
2,086
265
1,746
192
2,572
79
506
11
7,456
FY14E
2,588
265
1,860
192
2,739
84
539
11
8,278
FY15E
3,283
265
1,980
192
2,916
89
574
11
9,309
PPE
Goodw ill
Trademarks
Other intangibles
Long-term financial assets
Other non-current financial assets
Deferred tax assets
Other non-current assets
Total non-current assets
855
1,539
1,447
142
93
54
508
100
4,738
963
1,553
1,503
160
97
42
484
107
4,909
1,095
1,281
1,484
167
112
21
528
86
4,774
1,336
1,281
1,484
167
112
21
528
86
5,015
1,584
1,281
1,484
167
112
21
528
86
5,263
1,841
1,281
1,484
167
112
21
528
86
5,520
10,618
11,237
11,651
12,471
13,541
14,828
Short-term borrow ings
Accounts payable
Other current financial liabilities
Income taxes
Other current provisions
Current accrued liabilities
Other current liabilities
Liabilities classified as held for sale
Total current liabilities
273
1,694
123
265
470
842
241
0
3,908
289
1,887
66
252
549
992
303
0
4,338
280
1,790
83
275
563
1,084
299
0
4,374
280
1,852
83
284
582
1,084
309
0
4,475
280
1,972
83
303
620
1,084
329
0
4,672
280
2,099
83
323
660
1,084
351
0
4,880
Long-term borrow ings
Other non-current financial liabilities
Pensions and similar obligations
Deferred tax liabilities
Other non-current provisions
Non-current accrued liabilities
Other non-current liabilities
Total non-current liabilities
Total liabilities
1,337
15
180
451
29
39
36
2,087
5,995
991
9
205
430
55
45
36
1,771
6,109
1,207
17
251
368
69
40
34
1,986
6,360
1,207
17
251
381
69
40
35
2,000
6,475
1,207
17
251
405
69
40
37
2,027
6,699
1,207
17
251
432
69
40
40
2,055
6,935
Share capital
Reserves
Retained earnings
Shareholder's equity
Non-controlling interests
Total equity
209
563
3,844
4,616
7
4,623
209
791
4,137
5,137
-9
5,128
209
641
4,454
5,304
-13
5,291
209
641
5,161
6,011
-15
5,996
209
641
6,010
6,860
-17
6,842
209
641
7,063
7,913
-20
7,893
10,618
11,237
11,651
12,471
13,541
14,828
Total assets
Total liabilities and equity
102
adidas AG
Sporting Goods
Cash flow statement
adidas cash flow statement FY10-15E
In €m
Operating cash flow
PBT
D&A
Operating profit before w k
Increase in receivables
Increase in inventories
Increase in payables
Cash from operating activities
Interest paid
Income taxes paid
Net cash from operating activities
FY10
FY11
FY12
FY13E
FY14E
FY15E
806
270
1,144
(100)
(561)
757
1,240
(111)
(235)
894
869
253
1,179
(41)
(353)
449
1,234
(113)
(314)
807
851
536
1,430
(135)
23
94
1,412
(90)
(380)
942
1,378
284
1,662
(58)
(86)
62
1,614
1,673
303
1,976
(114)
(168)
121
1,881
2,065
322
2,388
(120)
(176)
127
2,287
(393)
1,221
(477)
1,404
(589)
1,699
Investing activities
Purchase of intangibles
Proceeds from intangibles
Purchase of PPE
Proceeds from sale of PPE
purchase of short-term financial assets
(Purchase)/ proceeds from Investments
Interests received
Net cash used in investing activities
Free Cash flow
(42)
17
(227)
1
(146)
44
23
(330)
564
(58)
0
(318)
2
(192)
(10)
30
(566)
241
(58)
1
(376)
19
195
10
35
(217)
725
(525)
(551)
(579)
(525)
696
(551)
853
(579)
1,120
33
0
(73)
0
(57)
0
(167)
(3)
(282)
2
(353)
2
(428)
2
(198)
(238)
(273)
(500)
(3)
496
(209)
(3)
(8)
(231)
42
(280)
(350)
(426)
55
381
775
1,156
0
1,156
(1,610)
15
(244)
1,156
912
6
906
(1,280)
(3)
764
912
1,676
6
1,670
(1,487)
416
1,676
2,092
6
2,086
(1,487)
503
2,092
2,595
6
2,588
(1,487)
694
2,595
3,289
6
3,283
(1,487)
966
6.7%
2.2%
(92)
(221)
1,034
8.0%
3.4%
(80)
91
1,294
8.0%
3.4%
(66)
448
1,884
8.0%
3.4%
(54)
864
2,343
8.0%
3.4%
(38)
1,366
2,942
8.0%
3.4%
(18)
2,061
Financing activities
(Repayments)/ proceeds from long-term borrow ings
Proceeds from issue of a Eurobond/ share capital
Dividend paid to shareholders
Dividend paid to non-controlling interest
Acquisition of non-controlling interests
Cash repayments of long-term debt
Net cash used in financing activities
FX
Change in cash and cash equivalents
Cash and cash equivalents, beginning of the year
Cash and cash equivalents at year-end
Bank overdraft
Cash & cash equivalents BS
Debt from BS
Interest calculation
Average cash/ (debt)
Interest rate (debit)
Interest rate (credit)
Interest (expense)/ income
Net cash/(debt)
103
Puma AG
Sporting Goods
The “special one”
•
•
•
•
•
•
We initiate coverage of Puma AG with a Hold recommendation and a
price target of €235, providing c.3% upside from current share price
levels (€228).
We view Puma as a special situation. Kering Group (formerly PPR),
which owns 82.4% of Puma, has recently experienced footwear
market share losses, management departures and weak operating
performance. In our view, Puma’s earnings rehabilitation will be
accelerated by Kering’s Jean-Francois Palus and a new management
team under Bjorn Gulden, the recently appointed CEO (ex-Pandora).
Should Kering acquire the outstanding 17.6% of Puma’s remaining
shares in order to fully access Puma’s balance sheet (FY12 net cash
€249m) and increase the 12-year average pay-out ratio of 13.8% more
in line with peers (adidas FY12 pay-out ratio: 35.7%; 12-year average:
c.24%), we would expect Kering to pay a premium.
Questions remain about how Puma will arrest declining market share,
attract senior quality management and find the right balance of
Performance and Lifestyle product mix aimed at consumers without
diluting its gross margin. According to our global sporting goods
proprietary market model, we estimate that Puma will lose c.10bp of
market share from FY12 to FY15 compared with adidas (+560bp) and
Nike (+960bp).
Puma’s “Back on the Attack” investment strategy, which was first
launched in October 2010, highlighted a 2015 revenue target of €4bn.
We do not believe this is achievable (FY15E revenue: €3.61bn). Since
Q3 2012, management has acknowledged that revenues are under
pressure and that in the short term the focus will be on restoring
Puma’s profitability.
Our €235 target price, based on our P/E analysis and driven by our
earnings and cash flow forecasts, implies CY13E and CY14E P/Es of
17.0x and 14.9x, supported by our DCF (€237). Puma’s PEG is above
the sector average at 1.7x (sector: 1.3x). We acknowledge EBIT
margin upside risk in 2014 and do not rule out the possibility of
Kering acquiring the outstanding free-float at a premium to current
levels.
Y/E 31.12., EUR m
Sales
EBITDA
EBIT
Net profit
Net debt (net cash)
EPS (reported)
EPS (recurring)
CPS
DPS
Gross margin
EBITDA margin
EBIT margin
Dividend yield
NOPAT/IC (Post tax ROIC)
EV/sales
EV/EBITDA
EV/EBIT
P/E
ROIC/WACC % spread
Source: Company data, Berenberg Bank
2011
2012
2013E
2014E
2015E
3,009
397
333
230
-357
15.4
15.4
1.1
2.0
49.6%
13.2%
11.1%
0.9%
11.1%
1.3
9.8
11.6
14.8
2.1%
3,271
182
291
248
-249
4.7
16.5
-0.5
0.5
48.3%
5.6%
8.9%
0.2%
11.2%
1.2
21.3
13.3
13.8
2.2%
3,277
375
306
206
-446
13.8
13.8
14.3
1.9
48.2%
11.5%
9.3%
0.8%
8.8%
1.2
10.3
12.7
16.5
-0.2%
3,446
418
345
236
-613
15.8
15.8
13.7
2.2
48.4%
12.1%
10.0%
1.0%
8.9%
1.1
9.3
11.2
14.4
-0.1%
3,612
456
380
263
-808
17.6
17.6
15.8
2.4
48.6%
12.6%
10.5%
1.1%
8.9%
1.1
8.5
10.2
13.0
-0.1%
Hold (initiation)
Rating system
Absolute
Current price
Price target
EUR 226.65
EUR 235.00
18/04/2013 XETRA Close
Market cap EUR - m
Reuters
PUMG.DE
Bloomberg
PUM GY
Share data
Shares outstanding (m)
Enterprise value (EUR m)
Daily trading volume
Performance data
High 52 weeks (EUR)
Low 52 weeks (EUR)
Relative performance to SXXP
1 month
-1.7 %
3 months
1.6 %
12 months
-25.8 %
15
3,874
5,229
269
210
DAX
-0.4 %
-0.5 %
-22.2 %
Business activities:
Sports lifestyle brand
Non-institutional shareholders:
Sapardis SA (Kering) 82.4%
25 April 2013
John Guy
Analyst
+44 20 3465 2674
[email protected]
Bassel Choughari
Analyst
+44 20 3465 2675
[email protected]
Rupert Trotter
Specialist Sales
+44 20 3207 7815
[email protected]
104
Puma AG
Sporting Goods
Catalysts for share price performance
Puma has underperformed the DAX index and SXXP 600 by 17% and 12% on a
relative basis over the past three months. Puma has underperformed adidas and
Nike by 30% and 16% respectively over the same period.
Puma is due to report its Q1 2013 trading/earnings update on 14 May. We forecast
Q1 2013 earnings of €4.34, a yoy decline of 12% driven by incremental markdown
and margin weakness within Footwear and Europe coupled with tough trading
comparison bases for the Americas (+8.5% constant currency sales growth) and
Asia-Pacific (+10.2% constant currency sales growth). Our Q1 2013 earnings
estimate is 9% below Bloomberg consensus at €4.79.
We are cautious about sales and market share momentum for the Puma brand
(c.95% of group sales). We expect Puma to grow at a slower rate versus global
GDP than peers over the next three years to 2015E, at 1.6x versus adidas at 2.2x
and Nike at 2.8x.
Moreover, we expect FY13 will mark a sales trough for the brand – we forecast
Puma brand growth of 0.9x versus GDP. Management continues to implement its
profit-focused transformation and cost reduction programme (rationalising c.90
unprofitable stores primarily in Western Europe and consolidating its distribution
and logistics operations). As a result, we expect Puma to underperform the market
by 170bp in 2013.
As a result of weaker-than-expected trading and profitability in 2012, Puma
announced its transformation and cost reduction programme aimed at driving up
short-term profitability and returns for shareholders. The main aims include:
• the establishment of a new business model and the reduction of
organisational entities from 23 in Europe to seven;
• the implementation of a warehouse rationalisation programme in
Europe, which is currently under way and ought to result in savings in
2013;
• a retail portfolio rationalisation of c.90 European and North American
stores;
• the termination of collaboration and endorsement contracts;
• The reduction of Puma’s product palette by 30% (by December 2015);
and
• the future establishment of its international organisations around seven
business units.
The principal aims behind these actions are to streamline current operations across
regions, improve sourcing, supply and distribution, and generate material cost
savings in the process.
We believe that 2013 will be another year of transition for Puma and maintain that
Puma’s 2015 sales target first outlined in October 2010 (in former CEO Jochen
Zeitz’s “Back on the Attack” presentation) appears unachievable (Berenberg
estimate: €3,612m; Bloomberg consensus: €3,666m). We await further
management updates after the announcement of the appointment of new CEO
Bjorn Gulden on 18 April.
105
Puma AG
Sporting Goods
Finally, we do not rule out the possibility that Kering will acquire the minority
17.6% of outstanding shares it does not own in order to a) own the business
outright, and b) take control of Puma’s balance sheet and increase its pay-out ratio
more in line with peers.
Earnings momentum
Within the past three months, Puma has underperformed the SXXP PanEuropean Stocks 600 Index by 12%. Puma has re-rated slightly over the past three
months on the back of anticipated cost savings into FY14, the announcement of a
new CEO, Bjorn Gulden, on 18 April, and increased market speculation as to
whether Kering will acquire the outstanding 17.6% of Puma shares.
Puma seven-year absolute share price performance vs. peers (rebased)
400
350
300
250
200
150
100
50
adidas
Jan 13
Apr 13
Jul 12
Oct 12
Jan 12
Apr 12
Jul 11
SXXP
Oct 11
Jan 11
Apr 11
Jul 10
Li Ning
Oct 10
Jan 10
Apr 10
Jul 09
Nike
Oct 09
Jan 09
Puma
Apr 09
Jul 08
Oct 08
Jan 08
Apr 08
Jul 07
Oct 07
Jan 07
Apr 07
Jul 06
Oct 06
Apr 06
0
Dax
Source: DataStream
Puma one-year absolute share price performance vs. peers (rebased)
180
160
140
120
100
80
60
40
Mar 13
Feb 13
Jan 13
SXXP
Dec 12
Nov 12
Li Ning
Oct 12
Sep 12
Nike
Aug 12
Jul 12
Puma
Jun 12
May 12
Apr 12
Mar 12
Feb 12
Jan 12
Dec 11
adidas
Dax
Source: DataStream
We assess the driving factors behind recent share price performance by calculating
the impact that 12-month forward consensus earnings moves and market
multiples/re-rating (on an absolute and relative level) have had on Puma and its
immediate peer group.
According to our analysis, Puma consensus forward EPS upgrade of c.7% is in line
with Nike, followed by a +10% de-rating on more cautious sales growth targets to
2015.
106
Puma AG
Sporting Goods
Puma 12-month forward consensus EPS moves and re-rating vs. peers
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
16%
16%
4%
-5%
adidas
Nike
Puma
Li Ning
12m fwd. Consensus EPS Δ
Market Multiple Δ
Mkt. Relative Multiple Δ
Share price movt
Source: DataStream
We highlight below Puma’s absolute and relative share price performance versus
adidas and peers Nike and Li-Ning and key benchmark indices. Puma remains an
under-performer. In addition, we note the underperformance spread versus adidas
from 2012 to year to date is at its widest.
Puma vs. adidas (seven-year absolute performance)
Puma vs. Nike (seven-year absolute performance)
250.0
300.0
200.0
250.0
200.0
150.0
150.0
100.0
Jul 12
Dec 12
Feb 12
Sep 11
Apr 11
Jan 10
Jun 10
Nike
Nov 10
Puma
Aug 09
Oct 08
Mar 09
May 08
Jul 07
Dec 07
Feb 07
Apr 06
Jul 12
Dec 12
Feb 12
Sep 11
Apr 11
Jan 10
Jun 10
Puma
Nov 10
adidas
Aug 09
Oct 08
Mar 09
May 08
Jul 07
Dec 07
Feb 07
Sep 06
-
Apr 06
50.0
-
Sep 06
100.0
50.0
Source: DataStream
Puma vs. Li Ning (seven-year absolute performance)
Puma vs. SXXP (seven-year absolute performance)
400.0
140.0
350.0
120.0
300.0
100.0
250.0
80.0
200.0
Dec 12
Jul 12
Feb 12
Sep 11
Apr 11
Jun 10
Jan 10
SXXP
Nov 10
Puma
Aug 09
Mar 09
Oct 08
May 08
Dec 07
Jul 07
Feb 07
Sep 06
Dec 12
Jul 12
Feb 12
Sep 11
Apr 11
Jun 10
Jan 10
Li Ning
Nov 10
Puma
Aug 09
Mar 09
Oct 08
May 08
Dec 07
Jul 07
-
Feb 07
20.0
-
Sep 06
40.0
50.0
Apr 06
100.0
Apr 06
60.0
150.0
Source: DataStream
107
Puma AG
Sporting Goods
Dec 12
Apr 13
Aug 12
Dec 11
Apr 12
Aug 11
Dec 10
Apr 11
Puma vs. Nike
Aug 10
Dec 09
Apr 10
Aug 09
Dec 08
Apr 09
Aug 08
Dec 07
Apr 08
Aug 07
Dec 06
Apr 06
Dec 12
Apr 13
Aug 12
Dec 11
Apr 12
Aug 11
Dec 10
Apr 11
Puma vs. adidas
Aug 10
Dec 09
Apr 10
Aug 09
Dec 08
Apr 09
Aug 08
0
Dec 07
20
0
Apr 08
40
20
Aug 07
60
40
Dec 06
80
60
Apr 07
100
80
Apr 06
120
100
Aug 06
120
Apr 07
Puma vs. Nike (seven-year relative performance)
Aug 06
Puma vs. adidas (seven-year relative performance)
Source: DataStream
Puma vs. Li Ning (seven-year relative performance)
180
160
140
120
100
80
60
40
20
0
Puma vs. SXXP (seven-year relative performance)
130
120
110
100
90
80
Apr 13
Dec 12
Aug 12
Apr 12
Dec 11
Aug 11
Dec 10
Apr 11
Puma vs. SXXP
Aug 10
Apr 10
Dec 09
Aug 09
Apr 09
Dec 08
Aug 08
Apr 08
Dec 07
Aug 07
Dec 06
Apr 07
Apr 06
60
Aug 06
Apr 13
Dec 12
Aug 12
Apr 12
Dec 11
Aug 11
Puma vs. Li Ning
Apr 11
Dec 10
Aug 10
Apr 10
Dec 09
Aug 09
Apr 09
Dec 08
Aug 08
Apr 08
Dec 07
Aug 07
Dec 06
Apr 07
Apr 06
Aug 06
70
Source: DataStream
Puma vs. DAX (seven-year absolute performance)
Puma vs. DAX (seven-year relative performance)
160.0
110
140.0
100
120.0
90
100.0
80
80.0
Apr 13
Dec 12
Aug 12
Apr 12
Dec 11
Aug 11
Dec 10
Apr 11
Puma vs. Dax
Aug 10
Apr 10
Dec 09
Aug 09
Apr 09
Dec 08
Aug 08
Apr 08
Dec 07
Aug 07
Dec 06
Apr 07
Apr 06
Jul 12
Dec 12
Feb 12
Sep 11
Apr 11
Jun 10
Jan 10
Dax
Nov 10
Puma
Aug 09
Mar 09
Oct 08
May 08
Dec 07
Jul 07
40
Feb 07
50
-
Sep 06
60
20.0
Apr 06
40.0
Aug 06
70
60.0
Source: DataStream
Puma vs. adidas (2012 to ytd – absolute)
170.0
160.0
150.0
140.0
130.0
120.0
110.0
100.0
90.0
80.0
Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
11 12 12 12 12 12 12 12 12 12 12 12 12 13 13 13
adidas
Puma
Puma vs. DAX (2012 to ytd – relative)
120
115
110
105
100
95
90
85
80
75
70
Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
11 12 12 12 12 12 12 12 12 12 12 12 12 13 13 13
Puma vs. Dax
Source: DataStream
108
Puma AG
Sporting Goods
H ow we differ from consensus
Our FY13 to FY15 earnings estimates are not materially distinct when compared
with consensus. FY13E earnings of €13.79 are 0.5% ahead of consensus and
FY14E earnings of €15.78 are 1.2% of Bloomberg consensus. We expect operating
cost savings to materialise from the second-half of 2013.
Our proprietary market share model
underperformance versus peers in 2013.
implies
c.170bp
market
share
We expect a negative 10bp gross margin impact to 48.2% due to above-average
sourcing costs for sustainable raw materials, and an increase in the Performance
product offering as a percentage of total sales (a steady increase of 500bp expected
to 2015 to c.40%) at a lower gross margin versus Lifestyle.
Berenberg Puma EPS vs. Bloomberg consensus
2%
1%
1%
1%
1%
1%
0%
0%
0%
1%
1%
0%
FY13E
FY14E
FY15E
Berenberg Puma EBIT margin vs. Bloomberg
40
35
30
25
20
15
10
5
0
38
37
FY14E
FY15E
23
FY13E
EBIT margin (bp)
EPS (%)
Berenberg Puma sales vs. Bloomberg consensus
0
0%
-20
-1%
-40
-2%
-13
-60
-1%
-2%
Berenberg Puma gross margin vs. Bloomberg
-1%
-2%
FY13E
FY14E
Sales (%)
-1%
FY15E
-60
-80
-100
-120
-99
FY13E
FY14E
FY15E
Gross margin (bp)
Puma’s Q4 2012 trading update was mixed but on balance, broadly reassuring.
Sales of €805m increased by 8.7% on a constant currency basis and were ahead of
consensus expectations of €755m. EMEA positively surprised at the top line, with
5% constant currency sales growth.
However, incremental sales came at the expense of gross margin as stock was
cleared aggressively, especially in western European regions ahead of Puma’s retail
rationalisation initiative. We note that the group Q4 2012 gross margin declined by
just over 200bp yoy to 44.6%, below expectations.
By category, Footwear Q4 2012 sales increased by 6% on a constant currency
basis, recording the first quarterly gain during 2012. We believe that sales spike
109
Puma AG
Sporting Goods
relative to a lacklustre nine-month performance was principally due to discounting,
hence the impact to gross margin – the Footwear gross margin declined by 470bp
yoy to 41.9%, well below the total margin decline for the quarter at -209bp.
We are cautious optimists as regards our FY13 Footwear constant currency growth
expectations of 3.0% (Q1 2013E +3.5%), although we believe that sales growth
will continue to be at the expense of gross margin (Q1 2013E gross margin of 51%
– an implied decline of 130bp yoy) as Puma rationalises its European and North
American store base in line with its transformation and cost reduction programme.
Upside risk to margin may appear through Puma’s improved management of its
inventory, as we note that stock levels were up by 3% as of December 2012
compared with the first nine months of the year at +20% on a constant currency
basis, hence there is a reduced risk to incremental markdown on weaker demand.
Notwithstanding incremental markdown and sales weakness, downside risk to the
2013 gross margin is related to currency hedging – Puma management indicated
that euro/dollar hedging rates for 2013 are expected at 1.28 compared with 1.36
for 2012, an implied 580bp annual currency-related impact.
We are below consensus for sales, EBIT and earnings for Q1 2013E. We look for
sales of €814m versus Bloomberg consensus at €830m, EBIT at €96m versus
consensus at €101m and earnings of €4.34 versus consensus of €4.79 on a fully
adjusted diluted basis.
110
Puma AG
Sporting Goods
Puma key assumptions and sensitivities (1)
Regional splits
In €m
Consolidated sales
% reported growth
% constant-FX growth
% FX & acquisitions effect
FY12-15E
3yr
CAGR
3.4%
FY10-15E
5yr
CAGR
5.9%
FY10
2,706
10.6%
3.6%
7.0%
FY11
3,009
11.2%
12.1%
-0.9%
FY12
3,271
8.7%
4.6%
4.1%
FY13E
3,277
0.2%
2.2%
-2.0%
FY14E
3,446
5.2%
5.2%
0.0%
FY15E
3,612
4.8%
4.8%
0.0%
Adjusted EBIT
338
12%
13%
333
11%
-1%
291
9%
-13%
306
9%
5%
345
10%
13%
380
11%
10%
9.4%
2.4%
Adjusted diluted EPS
Growth
15.42
0%
15.36
0%
16.55
8%
13.79
-17%
15.78
14%
17.58
11%
2.0%
2.7%
Sales by region
EMEA
% reported growth
Americas
% reported growth
Asia/Pacific
% reported growth
1,222
1.5%
-2.5%
4.0%
856
28.7%
20.2%
8.5%
629
8.8%
-2.6%
11.4%
1,312
7.4%
7.7%
-0.3%
967
13.0%
17.7%
-4.7%
730
16.1%
13.3%
2.8%
1,302
-0.8%
1.6%
-2.4%
1,127
16.6%
10.6%
6.0%
842
15.3%
7.4%
7.9%
1,282
-1.5%
-1.0%
-0.5%
1,107
-1.8%
1.2%
-3.0%
888
5.5%
8.5%
-3.0%
1,333
4.0%
4.0%
0.0%
1,162
5.0%
5.0%
0.0%
950
7.0%
7.0%
0.0%
1,387
4.0%
4.0%
0.0%
1,209
4.0%
4.0%
0.0%
1,017
7.0%
7.0%
0.0%
2.1%
2.6%
2.4%
7.1%
6.5%
10.1%
EBIT margin
Growth
111
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Puma key assumptions and sensitivities (2)
Segmental breakdown
In €m
Footwear
% reported growth
Apparel
% reported growth
Accessories
% reported growth
Total
% reported growth
FY10
1,425
7.8%
1.1%
6.7%
941
11.2%
3.8%
7.4%
340
21.8%
14.9%
6.9%
2,706
10.6%
3.6%
7.0%
FY11
1,540
8.1%
9.9%
-1.8%
1,036
10.0%
9.9%
0.1%
434
27.5%
27.3%
0.2%
3,009
11.2%
12.1%
-0.9%
FY12
1,595
3.6%
-0.1%
3.7%
1,152
11.2%
6.6%
4.6%
524
20.7%
16.6%
4.1%
3,271
8.7%
4.6%
4.1%
FY13E
1,595
0.0%
3.0%
-3.0%
1,129
-2.0%
1.0%
-3.0%
553
5.6%
2.4%
3.2%
3,277
0.2%
2.2%
-2.0%
FY14E
1,659
4.0%
4.0%
0.0%
1,185
5.0%
5.0%
0.0%
602
8.8%
8.8%
0.0%
3,446
5.2%
5.2%
0.0%
FY15E
1,717
3.5%
3.5%
0.0%
1,239
4.5%
4.5%
0.0%
656
9.1%
9.1%
0.0%
3,612
4.8%
4.8%
0.0%
Gross profit breakdown
€m
Footwear
Margin
Growth
Apparel
Margin
Growth
Accessories
Margin
Growth
Total
Margin
Growth
Change (bps)
697
48.9%
5.9%
476
50.6%
9.7%
172
50.6%
13.9%
1,345
49.7%
8.2%
-110.5
756
49.1%
8.5%
514
49.6%
7.8%
224
51.6%
30.0%
1,493
49.6%
11.0%
-7.2
742
47%
-1.9%
574
50%
11.7%
264
50.5%
17.7%
1,579
48.3%
5.7%
-135.5
740
46%
-0.2%
561
50%
-2.2%
279
50.5%
5.9%
1,580
48.2%
0.1%
-5.4
770
46%
4.0%
588
50%
4.8%
310
51.5%
11.1%
1,668
48.4%
5.5%
17.3
797
46%
3.5%
614
50%
127.7%
343
52.2%
151.9%
1,754
48.6%
122.0%
16.1
Working capital movement
(€m)
Stock turn (x)
Debtor days
Creditor days
116
0.32x
60
46
96
0.35x
65
52
45
0.33x
57
42
1
0.33x
57
42
35
0.33x
57
42
35
0.33x
57
42
-55
371
-71
356
-81
249
-70
446
-70
613
-70
807
Capex (€m)
Net cash/ (debt) (€m)
3yr
CAGR
2.5%
5yr
CAGR
3.8%
2.4%
5.6%
7.8%
14.0%
3.4%
5.9%
2.4%
2.7%
2.3%
5.2%
9.2%
14.8%
3.6%
5.4%
112
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Executive summary
Puma is the third-largest sporting goods player by revenue and ought to benefit
from long-term trends such as:
• an ageing, health conscious demographic;
• increased sporting investment by the media; and
• material cost savings through ongoing sourcing, supply and distribution
efficiencies.
In the short term (FY13), Puma management and Kering, Puma’s majority
shareholder with an 82.4% holding, have implemented a profit plan focused on
cost savings and store rationalisation called the transformation and cost reduction
programme.
The plan was announced during Q3 2012, and while Puma’s last set of quarterly
results surprised on the upside in terms of sales, profit and gross margin were
below consensus as stock was marked down ahead of European and North
American store closures, which materially affected Footwear profitability (the Q4
2012 gross margin declined by 470bp yoy to 41.9%, well below the total margin
decline for the quarter at -209bp).
We are cautious optimists as regards our FY13 Footwear constant currency growth
expectations of 3.0% (Q1 2013E +3.5%), al though we believe that sales growth
will continue to be at the expense of gross margin (Q1 2013E gross margin of
51%, an implied decline of 130bp yoy).
Puma’s pertinent questions
We outline the key questions that we and the market are asking about Puma’s
future sales and profit viability.
Will Puma grow market share in 2013?
We believe Puma market share growth in 2013 is unlikely. Puma is expected to
close a net 50 stores in FY13 (with a western European regional focus) in an effort
to rationalise its loss-making store base. We expect Puma to lose up to 170bp of
market share in 2013 with the adidas group and Nike being the main beneficiaries.
Berenberg estimated market growth vs. adidas, Nike and Puma (local FX)
15.0
10.0
5.0
0.0
-5.0
-10.0
2007
2008
adidas
2009
2010
Puma
2011
2012
Nike
2013E
2014E
2015E
Market
Source: Berenberg Bank estimates, company data, Euromonitor, Bloomberg estimates (Nike)
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While the rationalisation programme is positive for short-term profit restoration,
margin risk remains as old stock is cleared, although we appreciate that as of
December 2012, Puma’s inventory position materially improved at +3% yoy
compared with more than 20% yoy during the first nine months of 2012.
Forecast out/underperformance vs. global sporting goods (bp) 2007-15E
500
400
300
200
100
0
-100
-200
-300
-400
2007
2008
2009
2010
adidas
2011
Puma
2012
2013E
2014E
2015E
Nike
Are Puma’s “Back on the Attack” targets achievable?
Puma launched its five-year “Back on the Attack” strategy in October 2010.
Former CEO Franz Koch, who left the business in March 2013, outlined core
strategies for the business, which we believe will remain a key focus for Puma
under new CEO Bjorn Gulden (whose appointment was announced on 18 April).
We are more cautious compared with management’s 2015 official targets. We
appreciate that after a weaker-than-expected trading and margin performance in
Q3 2012 – including a reported sales growth of 6% to €892m (+0.5% on a
currency neutral basis), an EBIT decline of 17% to €99m and a gross margin miss
of 180bp to 48.2%) due to weaker-than-expected European trading, lost footwear
market share, higher markdown and sustained input cost pressure – management
and the market (Bloomberg FY15E consensus sales €3.7bn) have subsequently
become more cautious when communicating within the context of official targets.
The initial “Back on the Attack” aims were to:
• achieve €4bn of turnover by 2015;
• reclaim historical (high) EBIT margins (14-15%);
• sustainably improve shareholder value; and
• achieve all these goals while respecting environment and social issues
such as Puma’s ambition to take leather out of its footwear offering and
become the #1 brand in terms of sustainability recognition.
We highlight management’s estimated impact on the distribution mix from 2010 to
2015.
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Proposed impact on Puma’s business mix
Sales
PUMA brand
Non-PUMA brands
2010
96%
4%
2015 target
92%
8%
Accessories
Apparel
Footwear
14%
34%
52%
15%
35%
50%
APAC
Americas
EMEA
23%
32%
45%
23%
27%
50%
Top 6 Emerging
Rest of World
Top 6 Mature
14%
36%
50%
22%
40%
38%
Regional categories
Core categories
95%
5%
90%
10%
Retail & E-commerce
Wholesale
17%
83%
20%
80%
We outline our three-year sales CAGR (FY12-15E) assumptions and five-year sales
CAGR assumptions relative to management’s official target of reaching €4bn of
turnover by 2015. Our analysis suggests that Puma will fall short of its FY15 target
by €388m as we forecast FY15 revenues of €3,612m.
Berenberg estimated sales to FY15 and implied three and five year CAGR rates
Sales
PUMA brand
Non-PUMA
brands
FY10
2,706
2,598
FY11
3,009
FY12
3,271
FY15E
3,612
3,323
12-15E
3-year
CAGR
3.4%
10-15E
5-year
CAGR
5.9%
5.0%
108
289
21.7%
Accessories
Apparel
Footwear
340
941
1,425
656
1,239
1,717
14.0%
5.6%
3.8%
APAC
Americas
EMEA
629
856
1,222
1,017
1,209
1,387
10.1%
7.2%
2.6%
Top 6 Emerging
Rest of World
Top 6 Mature
379
974
1,353
795
1,445
1,373
16.0%
8.2%
0.3%
Regional categories
Core categories
2,571
135
3,251
361
4.8%
21.7%
Retail & Ecommerce
Wholesale
460
2,246
722
2,890
9.4%
5.2%
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As a result of poor operational and trading performances last year, former CEO
Franz Koch outlined a transformation and cost reduction programme aimed at
driving up short-term profitability and returns for shareholders via the following.
• The establishment of a new regional business model including the
reduction of European organisational entities from 23 to seven in
order to reduce the complexity of the business: Each area will have full
management team and P&L responsibility, with each country focusing its
activities on the commercial side of the business. The seven areas are the
DACH region (Germany, Austria and Switzerland), Iberia (Spain and
Portugal), UKIB (Belgium, Ireland, Luxembourg, the Netherlands and the
UK), the Nordics (Denmark, Finland, Norway and Sweden), Eastern
Europe (the Czech Republic, Estonia, Hungary, Lithuania, Poland and
Slovakia), France and Italy;
• The implementation of a warehouse rationalisation program in
Europe and North America: This is currently under way and will lead to
cost savings in FY13 and FY14;
• The optimisation of the retail portfolio: This will focus Puma’s attention
on closing c.90 unprofitable stores in Europe and North America with a
primary store opening strategy in emerging markets. By the end of 2013,
management expects to operate out of 540 stores worldwide compared with
590 as of FY12;
• The termination of collaboration and endorsement contracts: This is
designed to drive up short-term profitability as Puma divests “unprofitable”
collaborations and endorsement contracts (the discontinuation of Rugby in
the Northern Hemisphere (IFRU) and sailing, which is to be terminated in
December 2013 with the discontinuation of the Volvo Ocean race);
• The reduction of Puma’s product palette by 30% by the end of 2015:
The bulk of the rationalisation is expected to come from streamlining
regional and local ranges, the first effects of which are expected to be visible
by spring/summer 2013 and;
• The establishment of the international organisation around seven
business units: 1) teamsport; 2) running, training, fitness; 3) golf, 4)
fundamentals; 5) motorsport; 6) lifestyle (accessories); and 7) licensing.
Product management, design, development and product specific marketing
will be clustered under each business unit.
According to our model, we forecast that the FY13 gross margin will decline by
10bp yoy to 48.2% in spite of lower raw material costs and a soft gross margin
comparison base (-130bp in FY12 to 48.3% and -10bp in FY11 to 49.6%). We
note that Puma is hedged at 1.28 (euro/dollar) in 2013 compared with 2012 at 1.36
(negative).
In our view, the core strategic elements to Puma’s future success are predicated
around the sound execution of the following strategies:
• the implementation of sound product innovation and realisation of
product desirability;
• successful distribution, inventory management, SKU analysis (sell-out
and margin analysis);
• increased brand marketing “heat”;
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• a strong management team; and
• a fundamental understanding of what the key regional and demographic
product focuses are over the mid- to long term.
What will an increase in Performance product have on gross margins?
Puma Group’s brand portfolio is limited to three recognised brands: Puma, Cobra
Golf and Tretorn. We estimate that Puma accounts for c.95% of Puma total sales,
and at the group level, we understand that Performance accounts for 35% of total
sales with Lifestyle at 65%.
Performance,
35%
Lifestyle ,
65%
Lifestyle ,
60%
Performance,
40%
According to Puma management, 2013 will be a “pioneering” year, with an
increased focus on Performance innovation, resulting in a c.500bp increase in
Performance-related product to 40% by FY15 (compares with our estimated
Performance vs. Lifestyle FY15 adidas brand split of 72% to 28% (up from 22% as
of FY09).
Puma has in the past focused on its credentials as a sustainable and fashionorientated brand so the increased focus on Performance will be interesting in terms
of implied incremental costs associated with research, development, advertising
and promotion. We are conscious of the mix effect as according to our estimates,
Performance-related product gross margins range from 40% to 50% compared
with the Lifestyle product gross margin range of 50% to 65%, hence the implied
mix effect ought to be negative for Puma.
In addition, we note that Puma’s internal targets are to ensure that at least 50% of
its product will come from sustainable raw materials (up from just over 10%
today). While 2012 raw material prices for key commodities declined for sporting
goods (crude oil: +8.7%; rubber: -17.2%; cotton: -39.2% yoy), which is positive for
the 2013 gross margin, sustainable and bio-degradable product is more costly to
source and manufacture.
We expect the aggregate effect of currency hedging pressure, more benign raw
material pricing, Chinese labour cost inflation coupled with markdown risk on
store closures to result in a 10bp decline to Puma’s FY13E gross margin (48.2%).
When will the bulk of Puma cost savings come through?
Within the sporting goods sector, we have noted inefficiencies linked with some of
the largest companies as regards to warehouse capacity management, order-taking
and distribution – part of this, we believe was due to the legacy “order book”
model, whereby sporting goods companies would look to fill almost an entire
wholesale order book by up to 70-80% in advance and work on the basis of
releasing two global collections a year (summer and winter).
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This rather simplified model resulted in an initial lack of sourcing and supply chain
investment. Sporting goods manufacturers were regularly caught out with holding
too much or too little stock when wholesalers reacted abruptly to global macroeconomic shocks/downturns and upturns. As a result, sporting goods
manufacturers/retailers would suffer from volatile swings in cash flow and gross
margin, subject to global demand trends.
As part of the strategic investments Puma is taking to 2015, we believe there are
opportunities to rationalise distribution capacity, reduce costs and improve
working capital. We look for a 600bp improvement to 37.3% (excluding
depreciation and 39.4% including depreciation), more in line with FY10 (36.6%)
and FY11 (37.0%) levels as opposed to FY12 (43.3%) in FY13, falling to a run rate
of 36.5% (excluding depreciation) by FY15E.
By comparison, Nike recorded CY11 operating expenses as a percentage of sales
of 30.9% (Puma 37.0% in 2011), highlighting Nike’s superior operating efficiency
and future cost opportunities for Puma.
Will Kering acquire the 17.6% outstanding free-float?
Kering owns 82.4% of Puma. To date, Kering has yet to exercise its option to take
full control of Puma’s balance sheet. In 2012, Puma recorded €249m of net cash
and announced a 75% dividend cut to €0.50 implying a pay-out ratio of 10.7%
In our view, a pay-out ratio of 10.7% is low compared with adidas’s at 35.7% (10year average: c.24%) and as a result, we can envisage a scenario whereby Kering
acquires the minority free-float stake in order to take full control of Puma’s
balance sheet without having to communicate with minority shareholders. Puma
management maintains that the cash is required in order to fund its subsidiary
operations in key overseas markets.
The history of Kering’s stakebuilding is as follows. On 10 April 2007, Kering
announced it had reached an agreement with Mayfair Beteiligungsfondsegesellschaft I mbH to acquire its 27.1% stake in Puma for €330 per share,
excluding the FY06 dividend of €2.5.
At the same time, Kering declared its intention to acquire outstanding Puma shares
on the same financial terms – i.e. a 24% premium to Puma’s undisturbed onemonth weighted average share price (as of 3 March 2007). Assuming a 100%
acceptance, implied total consideration equalled €5.3bn and implied EV equated to
€4.9bn (12.2x and 13.4x FY06 EBITDA and EBIT respectively).
As of FY12, Kering’s stake in Puma has increased to 82.4%, driven by purchases
on the open market and by Puma buying back shares – we note that Puma bought
back shares in 2008 and 2011. In the two figures below, we chart the most recent
shareholding structure and also highlight Kering’s share purchases timeline since
2007.
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Puma – top five shareholders by size
Kering, 82.40%
Lombard Odier
Darier Hentsch,
0.46%
IG Investment
Management
Ltd, 0.49%
Amundi, 0.52%
Puma AG
Rudolf Dassler
Sport, 0.96%
Kering and Puma acquisition timeline
Start period
na
na
End period
Announcement date
09/04/2007
09/04/2007
17/07/2007
17/07/2007
Puma report
Stake (%)
Change Avg. no. of shares Avg/Price paid (EUR)
Consideration
27.14%
27.14%
330
1,424,621,538
1,849,036,277
16,027,964
62.10%
34.96%
16,027,289
330
19/07/2007
31/12/2007
FY 2007
63.55%
1.45%
16,018,027
290
67,383,675
01/01/2008
31/03/2008
Q1 2008
66.80%
3.25%
15,641,468
240
121,840,779
01/04/2008
30/06/2008
Q2 2008
68.20%
1.40%
15,529,248
238
51,658,882
01/07/2008
30/09/2008
Q3 2008
68.90%
0.70%
15,437,399
227
24,494,367
204
14,408,172
01/10/2008
31/12/2008
FY 2008
69.36%
0.46%
15,360,000
01/01/2009
31/12/2009
FY 2009
69.36%
0.00%
na
01/01/2010
31/03/2010
Q1 2010
69.38%
0.02%
15,082,464
223
672,376
01/04/2010
30/06/2010
Q2 2010
71.00%
1.62%
15,076,987
239
58,401,945
01/07/2010
30/09/2010
Q3 2010
71.60%
0.60%
15,082,464
225
20,344,132
01/10/2010
31/03/2011
Q1 2011
73.10%
1.50%
15,018,123
232
52,337,408
01/04/2011
30/06/2011
01/07/2011
08/08/2011
08/08/2011
31/12/2011
31/12/2011
19/11/2012
19/11/2012
24/03/2013
Q2 2011
08/08/2011
19/11/2012
73.50%
0.40%
15,000,472
213
12,808,603
75.10%
1.60%
14,981,387
217
52,010,582
239
261,058,392
FY 2011
75.10%
0.00%
14,981,387
9M 2011
82.40%
7.30%
14,969,202
FY 2012
82.40%
0.00%
na
Source: Berenberg Bank estimates, Bloomberg, company data
We believe that Kering would have two main options if it was to conclude that
Puma’s cash utilisation was sub-optimal.
1) It could acquire more shares on the open market to reach a 95% stake and
then delist Puma after having squeezed out the minority 5% holding –
assuming no premium, the minimum price Kering would have to pay
would be €235 per share based on the three-month volume weighted
average.
2) As Kering owns more than 75% of Puma, it has the option to enter into a
domination agreement, which provides the right to give binding
instructions to Puma’s management (to increase the dividend pay-out, for
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example). Our understanding is that so far, Kering has no intention of
entering into such an agreement. While Kering’s management will be proactive in its dialogue with new CEO Bjorn Gulden, we expect Kering to
allow Gulden to execute on the current transformation and cost reduction
programme.
Puma’s historical pay-out ratio (2001 to 2012)
34.2%
15.1% 16.2%
11.5% 10.2%
11.2%
18.1%
15.8%
13.0%
10.7%
6.2% 6.2%
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12
Pay out ratio
We do not rule out Kering acquiring the 17.6% outstanding free-float. Assuming
no premium to the three-month volume weighted average share price (€235),
Kering would have to pay just over €618m. A 20% premium would imply a cost of
just over €740m.
At a time when Kering has stated its intention to acquire a brand which bridges the
luxury and sporting goods gap, in our view an outright bid, although not out of the
question, is unlikely.
We believe that Kering may be interested in acquiring a non-public brand such as
Lacoste, although we acknowledge that a minimum transaction value per share at
€235 ought to underpin Puma’s share price.
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Valuation
We forecast that Puma’s net cash will increase from €249m in FY12 to €446m in
FY13. Stock levels are well managed and while we see some markdown risk related
to European and North American store closures, we are confident that Puma can
manage inventory levels in 2013 notwithstanding a material global/financial shock.
Raw material cost pressures ought to ease in 2013 and potentially in 2014 (Q1 2013
commodity cost movements are positive). Yet we expect sourcing gains to be
offset by higher Chinese labour costs, negative hedging and a weaker gross margin
mix as Puma steadily increases its Performance product mix from c.35% to c.40%
to FY15.
We expect 2013 to remain a transition year and remain sceptical at this stage about
Puma’s €4bn revenue target by FY15 (Berenberg FY15E €3,612m).
Management’s 2013 guidance includes:
• flat sales and mid-single-digit EBIT growth;
• gross margin volatility on the back of negative hedging, positive raw
material costs and higher Chinese labour costs;
• savings to come from lower operating expenses as a percentage of sales;
and
• capital expenditure in the region of €55m to €70m (although closer to
€70m).
In 2010, Puma management believed that it could achieve a 15% EBIT margin.
Puma’s EBIT margin peaked at 23.5% in FY04 but has since fallen back to 8.9%
on an adjusted basis. Now management is more conservative about future EBIT
margins and we believe would be satisfied with achieving 10-12% in the short
term. We look for a 40bp EBIT margin increase in 2013 to 9.3% driven by a
reduction in operating expenses as a percentage of sales (in line with management
guidance).
On a non-cash-adjusted basis, and at the current share price level of €228, Puma
trades on FY13E and FY14E P/Es of 16.5x and 14.4x respectively compared with
its seven-year average of 17.9x.
Our datastream chart has been affected by 2012 write-downs of €177.5m
associated with restructuring the distribution set-up and the closure of subsidiaries
in Greece, Cyprus and Bulgaria. Included in the €177.5m write-downs were €42m
of costs associated with the acquisition of Spanish trademarks. Stripping out the
reported earnings volatility in 2012, Puma’s average P/E is c.17x.
On a cash-adjusted basis, our current and one-year forward estimated multiples fall
to 14.4x and 11.9x.
We believe that our €235 target price would prove conservative should Kering
acquire the outstanding 17.6% of Puma shares, as there is no implied premium to
the three-month volume weighted average share price of €235.
Our €235 share price target implies FY13E and FY14E P/Es of 17.0x and 14.9x
on a non-cash-adjusted basis and 14.9x and 12.3x on a cash-adjusted basis and is
supported by our DCF (€237).
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Puma seven-year historical average P/E
60.0x
50.0x
40.0x
30.0x
20.0x
17.9x
10.0x
Apr-13
Dec-12
Aug-12
Dec-11
Apr-12
Aug-11
Dec-10
Apr-11
Apr-10
Aug-10
Dec-09
Aug-09
Dec-08
Apr-09
Aug-08
Dec-07
Apr-08
Apr-07
Aug-07
Dec-06
Aug-06
Apr-06
0.0x
Puma
Source: DataStream
However, we expect post-tax ROIC to decline over the coming few years, placing
pressure on management to cut costs and accelerate profit growth and earnings.
Moreover, we acknowledge the arrival of new CEO Bjorn Gulden on 18 April. We
understand that Gulden and Kering are looking for a new COO and it will take
time for the new management team to bed down (Reiner Seiz of procurement
recently left the business, as has the head of marketing Antonio Bertone and head
of finance, legal, operations, logistics IT and HR, Klaus Bauer).
Puma post-tax ROIC evolution
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
FY06
FY07
FY08
FY09
FY10
FY11
Post tax ROIC
Source: Berenberg estimates
122
Puma AG
Sporting Goods
Puma valuation metrics
EBITDA growth
Sales growth
EBIT growth
2013E
2014E
2015E
2013E
2014E
2015E
2013E
2014E
2015E
4.5%
7.1%
6.3%
21.7%
20.6%
-16.3%
10.0%
5.7%
-9.4%
6.7%
7.9%
7.8%
20.5%
21.4%
3.4%
7.2%
5.0%
7.2%
5.9%
6.9%
9.2%
20.4%
21.5%
9.0%
4.6%
4.2%
12.3%
16.3%
10.9%
16.7%
24.3%
9.9%
-15.9%
14.7%
35.9%
n.m.
16.3%
12.1%
9.6%
23.9%
30.0%
3.8%
10.8%
11.0%
249.9%
14.4%
8.2%
12.8%
22.6%
21.4%
11.7%
3.0%
7.1%
45.1%
17.0%
12.1%
15.1%
26.6%
11.6%
-15.3%
16.8%
50.5%
n.m.
18.6%
11.9%
11.2%
25.4%
26.5%
2.7%
12.9%
14.0%
n.m.
15.4%
NA
9.4%
NA
25.7%
12.5%
NA
9.2%
145.5%
8.0%
9.3%
9.0%
13.4%
15.5%
12.0%
14.3%
14.7%
7.5%
Total sector median
6.3%
7.2%
9.0%
15.5%
12.1%
12.8%
16.0%
13.5%
13.9%
1.4%
-81.8%
0.2%
-97.5%
5.5%
-40.8%
5.2%
-44.4%
4.8%
-47.0%
4.8%
-46.2%
20.9%
56.7%
106.1%
694.3%
11.0%
-29.1%
11.3%
-27.0%
10.0%
-16.7%
9.2%
-22.8%
5.1%
-64.6%
5.3%
-62.8%
13.0%
-11.7%
12.7%
-13.6%
9.7%
29.6%
10.2%
35.1%
adidas
Nike
VF Corp
Under Armour
Lulu Lemon
Anta Spots
Asics
Amer Sports
Li Ning
Puma
Net debt/ EBITDA
adidas
Nike
VF Corp
Under Armour
Lulu Lemon
Anta Spots
Asics
Amer Sports
Li Ning
Total sector median
Puma
EBITDA margin
EBIT margin
2013E
-0.4x
-1.0x
0.4x
-1.0x
-12.1x
-3.3x
-0.3x
1.9x
3.0x
-1.6x
2014E
-0.6x
-0.9x
0.1x
-1.1x
-13.2x
-3.4x
-0.6x
1.6x
0.5x
-1.7x
2015E
-0.6x
NA
0.0x
NA
-15.9x
-3.1x
-0.6x
1.3x
0.2x
-0.4x
2013E
10.9%
14.9%
16.8%
14.0%
28.0%
19.9%
10.3%
9.5%
2.1%
15.4%
2014E
11.9%
15.5%
17.0%
14.4%
29.9%
19.9%
10.6%
10.0%
6.7%
16.1%
2015E
12.8%
15.7%
17.6%
14.7%
29.9%
20.4%
10.5%
10.3%
8.7%
16.5%
2013E
8.9%
13.3%
14.6%
11.8%
25.5%
18.5%
8.4%
7.7%
-3.3%
13.5%
2014E
9.9%
13.8%
15.0%
12.3%
26.5%
18.4%
8.8%
8.4%
2.6%
14.1%
2015E
10.8%
NA
15.1%
NA
27.5%
19.0%
NA
8.8%
5.7%
10.5%
-0.4x
-0.6x
-0.6x
14.0%
14.4%
14.7%
11.8%
12.3%
12.9%
-1.2x
-23.5%
-1.2x
-24.8%
-1.5x
-15.4%
-1.5x
-15.0%
-1.7x
293.3%
-1.8x
318.6%
11.3%
-26.4%
11.5%
-25.5%
11.9%
-26.0%
12.1%
-24.6%
12.5%
-24.1%
12.6%
-23.2%
9.2%
-31.7%
9.3%
-30.7%
9.9%
-30.2%
10.0%
-29.1%
10.3%
-1.6%
10.5%
0.2%
Puma – market price multiples Bloomberg and Berenberg estimates vs. peers
PE
EV/ EBITDA
EV/ EBIT
EV/ sales
adidas
Nike
VF Corp
Under Armour
Lulu Lemon
Anta Spots
Asics
Amer Sports
Li Ning
2013E
17.1x
21.0x
15.7x
38.4x
34.7x
12.9x
21.9x
13.4x
n.m.
21.1x
2014E
14.2x
18.2x
13.9x
30.4x
27.3x
12.7x
19.6x
11.5x
47.4x
18.2x
2015E
12.2x
16.1x
12.3x
23.9x
22.2x
11.5x
16.7x
10.5x
15.6x
15.5x
2013E
9.2x
12.8x
10.3x
18.0x
21.1x
6.6x
12.1x
9.1x
32.8x
12.6x
2014E
7.9x
11.4x
9.4x
14.6x
16.2x
6.4x
11.0x
8.2x
9.4x
10.9x
2015E
6.9x
10.5x
8.4x
11.9x
13.3x
5.7x
10.6x
7.6x
6.5x
9.7x
2013E
11.2x
14.3x
11.9x
21.3x
23.1x
7.1x
14.9x
11.1x
n.m.
14.2x
2014E
9.5x
12.7x
10.7x
17.0x
18.3x
6.9x
13.2x
9.8x
24.3x
12.4x
2015E
8.2x
NA
9.8x
NA
14.5x
6.2x
NA
9.0x
9.9x
4.6x
2013E
1.0x
1.9x
1.7x
2.5x
5.9x
1.3x
1.2x
0.9x
0.7x
2.0x
2014E
0.9x
1.8x
1.6x
2.1x
4.8x
1.3x
1.2x
0.8x
0.6x
1.8x
2015E
0.9x
1.6x
1.5x
1.7x
4.0x
1.2x
1.1x
0.8x
0.6x
1.6x
Total sector median
19.0x
18.2x
15.6x
12.1x
9.4x
8.4x
13.1x
12.7x
9.4x
1.3x
1.3x
1.2x
16.6x
-21.3%
16.8x
-20.5%
14.6x
-19.5%
14.7x
-19.3%
13.2x
-15.0%
13.2x
-15.2%
8.2x
-34.9%
8.0x
-36.8%
7.4x
-31.9%
7.2x
-34.0%
6.7x
-30.6%
6.6x
-32.3%
10.1x
-29.1%
9.8x
-31.3%
8.9x
-28.2%
8.7x
-30.3%
8.1x
78.4%
7.9x
72.6%
0.9x
-54.4%
1.0x
-52.2%
0.9x
-51.8%
0.9x
-49.3%
0.8x
-49.0%
0.9x
-46.4%
Puma
123
Puma AG
Sporting Goods
Puma – target price multiples Bloomberg and Berenberg estimates vs. peers
PE
EV/ EBITDA
EV/ sales
EV/ EBIT
adidas
Nike
VF Corp
Under Armour
Lulu Lemon
Anta Spots
Asics
Amer Sports
Li Ning
2013E
18.5x
21.5x
16.3x
40.9x
37.4x
12.9x
20.2x
14.8x
n.m.
22.1x
2014E
15.4x
18.7x
14.5x
32.3x
29.5x
12.7x
18.2x
12.7x
47.4x
19.0x
2015E
13.3x
16.5x
12.8x
25.4x
23.9x
11.5x
15.5x
11.6x
15.6x
16.2x
2013E
10.0x
13.1x
10.7x
19.2x
22.8x
5.7x
11.3x
9.8x
28.9x
13.1x
2014E
8.6x
11.7x
9.8x
15.5x
17.5x
5.5x
10.2x
8.8x
8.3x
11.3x
2015E
7.5x
10.8x
8.7x
12.6x
14.5x
4.9x
9.9x
8.3x
5.7x
10.1x
2013E
12.2x
14.7x
12.3x
22.7x
25.0x
6.1x
13.8x
12.0x
n.m.
14.8x
2014E
10.3x
13.1x
11.1x
18.1x
19.8x
5.9x
12.2x
10.6x
21.5x
12.9x
2015E
8.9x
NA
10.1x
NA
15.7x
5.3x
NA
9.7x
8.7x
9.0x
2013E
1.1x
2.0x
1.8x
2.7x
6.4x
1.1x
1.2x
0.9x
0.6x
2.1x
2014E
1.0x
1.8x
1.7x
2.2x
5.2x
1.1x
1.1x
0.9x
0.6x
1.9x
2015E
1.0x
1.7x
1.5x
1.9x
4.3x
1.0x
1.0x
0.8x
0.5x
1.7x
Total sector median
19.4x
18.2x
15.5x
11.3x
9.8x
8.7x
13.0x
12.2x
9.3x
1.2x
1.1x
1.0x
17.2x
-22.1%
14.8x
-32.9%
15.1x
-20.2%
17.8x
-6.3%
13.7x
-15.7%
15.5x
-4.2%
8.5x
-35.1%
17.5x
33.3%
7.7x
-32.1%
8.5x
-24.8%
7.0x
-30.8%
7.6x
-24.3%
10.5x
-29.5%
11.0x
-26.1%
9.3x
-28.5%
10.4x
-19.5%
8.4x
-6.0%
9.2x
3.0%
1.0x
-54.7%
1.0x
-54.2%
0.9x
-52.1%
1.0x
-49.0%
0.9x
-49.3%
0.9x
-46.2%
Puma
124
Puma AG
Sporting Goods
Company description
Puma is a leading sporting goods company within the design and distribution (wholesale,
retail & eCommerce) of footwear, apparel and accessories. adidas Group brands include
PUMA, Cobrda Golf and Tretorn. PPR is Puma's major shareholder with an equity stake of
82.4%.
SWOT
Strengths
Strong global brand name supported by an
improving control over the distribution
network, core competence in sport performance
. Further opportunities to reduce the cost base,
increase DOS and optimise its distribution
network.
Weaknesses
Puma brand has been loosing momentum for
several years. Dividend pay-out ratio is
relatively low vs. sporting goods peers.
Relatively low exposure to football sporting
events. Market share risk continues short term
as Puma rationalises the store base in Europe
and North America
Opportunities
Threats
Further expansion of directly owned stores
Exposure to weaker consumption trends and
eCommerce expansion, particularly in Asia
consumer confidence. General fashion trends
and North America. Gross margin uplifts via and misjudgement of consumer needs and
product mix, supply chain and distribution
tastes are also risks. Increasing competition in
improvements. Become the leading sustainable the sporting goods and fahsion apparel
sporting goods company and benfiting from its segments
transfromation and cost reduction plan
Sales by division, FY12
Consensus estimates
Apparel,
35.2%
Hardware,
16.0%
20
15
10
5
0
BUY
HOLD
SELL
Footwear,
48.8%
Source: Bloomberg
125
Puma AG
Sporting Goods
Industry competitive position
Average score:
3
3
Supplier power
Raw materials account for c.65% of group COGS and Puma is exposed to prices of rubber,
cotton, polyester and those which closely corelates with oil price.
3
Barriers to entry
New designers/ companies enter the industry on a regular basis. However, significant
investments in product innovation, marketing and distribution over a long period is necessary
to establish a brand.
4
Customer power
Relatively higher for chains vs. mom & pop shops. Howecer, customer power decreases as
sporting goods brands increase their exposure to retail and eCommerce.
1
Substitute products
Most of sporting goods products have subtitutes designed by competitors. There is a significant
risk that counterfeit or copied products and parallel distribution could damage brand image.
2
Rivalry
The marketplace is highly competitive. In the sporting goods sector, competition is on price,
innovation, brand image, people and location.
Puma historical PE
60.0x
50.0x
40.0x
30.0x
20.0x
17.9x
10.0x
Dec-12
Apr-13
Aug-12
Dec-11
Apr-12
Aug-11
Dec-10
Apr-11
Aug-10
Dec-09
Apr-10
Aug-09
Dec-08
Apr-09
Aug-08
Dec-07
Apr-08
Aug-07
Dec-06
Apr-07
Apr-06
Aug-06
0.0x
Puma
Puma and Index performance FY09-12
140.0
120.0
100.0
80.0
60.0
40.0
Puma
Apr-13
Jan-13
Oct-12
Jul-12
Jan-12
Apr-12
Jul-11
Oct-11
Apr-11
Jan-11
Oct-10
Jul-10
Jan-10
Apr-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Apr-08
0.0
Jul-08
20.0
Dax
Source: Bloomberg
126
Puma AG
Sporting Goods
Financials
Profit and loss account
Puma P&L FY10-15E
In €m
Sales
chg.
CoGS
% of sales
Gross profit
margin
Royalty and commission
% of sales
Operating expenses
% of sales
EBITDA
margin
Depreciation
% of sales
Operating incom e
margin
Special items
% of sales
Operating incom e adjusted
margin
Income from associates
Financial income
Financial expenses
Financial result
Earnings before taxes
Earnings before taxes adjusted
Taxes on income
Tax rate
Taxes on income adjusted
Tax rateadjusted
Minority interest
Net incom e
chg.
Net incom e adjusted
chg.
FY10
2,706
+10.6%
(1,362)
50.3%
1,345
49.7%
19
0.7%
(991)
36.6%
373
13.8%
(66)
2.4%
307
11.3%
(31.0)
-1.1%
338
12.5%
1.8
4
(12)
(7)
301
332
(99)
32.9%
(99)
29.9%
0.0
202
+155.0%
233
+0.3%
FY11
3,009
+11.2%
(1,516)
50.4%
1,493
49.6%
18
0.6%
(1,114)
37.0%
397
13.2%
(63)
2.1%
333
11.1%
0.0
0.0%
333
11.1%
1.1
5
(19)
(14)
320
320
(90)
28.1%
(90)
28.1%
(0.3)
230
+13.8%
230
-1.3%
FY12
3,271
+8.7%
(1,692)
51.7%
1,579
48.3%
19
0.6%
(1,416)
43.3%
182
5.6%
(69)
2.1%
113
3.5%
(177.5)
-5.4%
291
8.9%
0.6
7
(8)
(2)
112
290
(33)
28.9%
(33)
11.2%
(9.6)
70
-69.5%
248
+7.6%
FY13E
3,277
+0.2%
(1,697)
51.8%
1,580
48.2%
17
0.5%
(1,222)
37.3%
375
11.5%
(69)
2.1%
306
9.3%
0.0
0.0%
306
9.3%
0.6
FY14E
3,446
+5.2%
(1,778)
51.6%
1,668
48.4%
22
0.6%
(1,271)
36.9%
418
12.1%
(73)
2.1%
345
10.0%
0.0
0.0%
345
10.0%
0.6
FY15E
3,612
+4.8%
(1,858)
51.4%
1,754
48.6%
21
0.6%
(1,318)
36.5%
456
12.6%
(76)
2.1%
380
10.5%
0.0
0.0%
380
10.5%
0.6
(2)
304
304
(88)
29.0%
(88)
29.0%
(9.6)
206
+194.1%
206
-16.6%
0
346
346
(100)
29.0%
(100)
29.0%
(9.6)
236
+14.4%
236
+14.4%
3
384
384
(111)
29.0%
(111)
29.0%
(9.6)
263
+11.4%
263
+11.4%
EPS
chg.
EPS adjusted , diluted
chg.
13.45
+154.5%
15.42
+0.1%
15.36
+14.8%
15.36
-0.4%
4.69
-69.5%
16.55
+7.8%
13.80
+194.1%
13.79
-16.6%
15.78
+14.4%
15.78
+14.4%
17.58
+11.4%
17.58
+11.4%
Weighted average shares outstanding (mn)
Weighted average shares outstanding, diluted (mn)
15.031
15.123
14.981
14.985
14.967
14.968
14.967
14.968
14.967
14.968
14.967
14.968
DPS
Pay out ratio
1.80
13.4%
2.00
13.0%
0.50
10.7%
1.90
13.8%
2.18
13.8%
2.43
13.8%
127
Puma AG
Sporting Goods
Balance sheet
Puma balance sheet FY10-15E
In €m
Cash & cash equivalents
Inventories
Trade receivables
Income tax receivables
Other current financial assets
Other current assets
Current assets
FY10
480
440
447
81
26
74
1,547
FY11
448
537
533
73
45
79
1,715
FY12
407
553
507
58
33
85
1,643
FY13E
604
554
508
58
33
85
1,842
FY14E
771
582
534
61
33
89
2,071
FY15E
966
610
560
64
33
94
2,327
97
237
423
24
18
21
819
109
235
452
25
19
27
867
152
227
463
24
17
5
888
152
228
463
24
17
5
889
152
225
463
24
17
5
886
152
219
463
24
17
5
880
2,367
2,582
2,530
2,730
2,957
3,207
Current bank liabilities
Trade payables
Income taxes
Other current provisions (incl. Tax provisions)
Other current provisions
Liabilities from acquisitons
Other current financial liabilities
Other current liabilities
Current liabilities
43
344
18
107
72
56
59
101
799
35
431
12
70
44
94
56
96
839
44
376
44
396
44
415
55
118
3
114
94
804
44
377
0
55
118
3
114
94
804
55
118
3
114
94
824
55
118
3
114
94
843
Deferred taxes
Pension provisions
Other non-current provisions
Liabilities from acquisitions
Other non-current financial liabilities
Other non-current liabilities
Non-current liabilities
51
26
12
82
7
4
181
64
30
26
7
0
11
138
54
31
38
3
0
3
130
54
31
38
3
0
3
130
54
31
38
3
0
3
130
54
31
38
3
0
3
130
Total liabilities
980
977
933
934
953
972
Subscribed capital
Group reserves
Retained earnings
Treasury stock
Group shareholder's equity
Non-controlling interest
Shareholders' equity
39
257
1,114
(23)
1,386
0
1,386
39
281
1,317
(33)
1,605
1
1,605
39
224
1,358
(32)
1,588
9
1,597
39
224
1,557
(32)
1,787
9
1,796
39
224
1,764
(32)
1,995
9
2,004
39
224
1,995
(32)
2,226
9
2,235
Total liabilities and shareholders' equity
2,367
2,582
2,530
2,730
2,957
3,207
Deferred taxes
PPE
Intangible assets
Investment in associates
Other non-current financial assets
Other non-current assets
Non-current assets
Total assets
128
Puma AG
Sporting Goods
Cash flow statement
Puma cash flow FY10-15E
In €m
Earnings before taxes (EBT)
Adjustments for:
Depreciation
Financial result
Gross cash flow
Changes in receivables and other current assets
Changes in inventories
Changes in trade payables and other current liabili
Cash inflow from operating activities
Interest paid
Income taxes paid
One-time expenses paid
Net cash from operating activities
FY10
301
FY11
320
FY12
112
FY13E
304
FY14E
346
FY15E
384
66
7
358
(111)
(53)
67
261
(6)
(86)
63
14
382
(97)
(97)
88
276
(7)
(142)
76
4
328
(6)
(24)
(62)
236
(6)
(73)
69
73
76
373
(1)
(1)
1
372
419
(34)
(29)
19
376
460
(33)
(28)
19
418
(88)
(100)
(111)
169
127
157
284
276
307
Investing activities
Payment for acquisitions
Purchase of property and equipment
Proceeds from sales of property and equipment
Changes in other non-current assets
Interest received
Net cash used in investing activities
(108)
(55)
9
(2)
4
(152)
(44)
(71)
3
(3)
5
(110)
(92)
(81)
4
(1)
5
(165)
(70)
(70)
(70)
(0)
(0)
(0)
(70)
(70)
(70)
Free cash flow
Free cash flow (before acquisition)
in % of consolidated sales
17
126
4.6%
17
61
2.0%
(8)
84
2.6%
214
214
6.5%
205
205
6.0%
237
237
6.6%
(54)
31
(6)
486
480
(0)
480
(108)
(59)
11
(31)
480
449
0
448
(92)
(21)
(12)
(41)
449
408
0
407
(158)
(17)
(38)
(42)
197
408
604
0
604
(158)
167
604
772
0
771
(158)
194
772
966
0
966
(158)
482
10.2%
0.9%
-7.1
371
464
19.1%
1.1%
-13.9
357
428
6.7%
1.6%
-1.5
249
506
7%
2%
-2.5
446
688
7%
2%
0.5
613
869
7%
2%
3.4
808
Financing activities
Net cash used in financing activities
FX impact
Change in cash and cash equivalents
Cash and cash equivalents, beginning of the year
Cash and cash equivalents at year-end
Bank overdraft
Cash & cash equivalents BS
Debt from BS
Interest calculation
Average cash/ (debt)
Interest rate (debit)
Interest rate (credit)
Interest (expense)/ income
Net cash
129
Sporting Goods
Please note that the use of this research report is subject to the conditions and restrictions set forth in the
“General investment-related disclosures” and the “Legal disclaimer” at the end of this document.
For analyst certification and remarks regarding foreign investors and country-specific disclosures, please
refer to the respective paragraph at the end of this document.
Disclosures in respect of section 34b of the German Securities Trading Act
(Wertpapierhandelsgesetz – WpHG)
Company
adidas AG
Puma AG
(1)
(2)
(3)
(4)
(5)
(6)
Disclosures
5
no disclosures
Berenberg Bank or its affiliate(s) was Lead Manager or Co-Lead Manager over the previous 12 months of a
public offering of this company.
Berenberg Bank acts as Designated Sponsor for this company.
Over the previous 12 months, Berenberg Bank and/or its affiliate(s) has effected an agreement with this
company for investment banking services or received compensation or a promise to pay from this company
for investment banking services.
Berenberg Bank and/or its affiliate(s) holds 5% or more of the share capital of this company.
Berenberg Bank holds a trading position in shares of this company.
Berenberg Bank and/or its affiliate(s) holds a net short position of 1% or more of the share capital of this
company, calculated by methods required by German law as of the last trading day of the past month.
Historical price target and rating changes for adidas AG in the last 12 months (full coverage)
Date
25 April 13
Price target - EUR
95.00
Rating
Buy
Initiation of coverage
25 April 13
Historical price target and rating changes for Puma AG in the last 12 months (full coverage)
Date
25 April 13
Price target - EUR
235.00
Rating
Hold
Initiation of coverage
25 April 13
Berenberg distribution of ratings and in proportion to investment banking services
Buy
Sell
Hold
44.02 %
17.93 %
38.05 %
62.50 %
9.38 %
28.13 %
Valuation basis/rating key
The recommendations for companies analysed by Berenberg Bank’s equity research department are either made on an
absolute basis (“absolute rating system”) or relative to the sector (“relative rating system“), which is clearly stated in
the financial analysis. For both absolute and relative rating system, the three-step rating key “Buy”, “Hold” and “Sell”
is applied. For a detailed explanation of our rating system, please refer to our website at
http://www.berenberg.de/research.html?&L=1
NB: During periods of high market, sector or stock volatility, or in special situations, the rating system criteria as
described on our website may be breached temporarily.
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Bundesanstalt für Finanzdienstleistungsaufsicht -BaFin- (Federal Financial Supervisory Authority),
Graurheindorfer Straße 108, 53117 Bonn and Lurgiallee 12, 60439 Frankfurt am Main
130
Sporting Goods
General investment-related disclosures
Joh. Berenberg, Gossler & Co. KG (“Berenberg Bank”) has made every effort to carefully research all information
contained in this financial analysis. The information on which the financial analysis is based has been obtained from
sources which we believe to be reliable such as, for example, Thomson Reuters, Bloomberg and the relevant
specialised press as well as the company which is the subject of this financial analysis.
Only that part of the research note is made available to the issuer (who is the subject of this analysis) which is
necessary to properly reconcile with the facts. Should this result in considerable changes a reference is made in the
research note.
Opinions expressed in this financial analysis are our current opinions as of the issuing date indicated on this
document. The companies analysed by Berenberg Bank are divided into two groups: those under “full coverage”
(regular updates provided); and those under “screening coverage” (updates provided as and when required at irregular
intervals).
The functional job title of the person/s responsible for the recommendations contained in this report is “Equity
Research Analyst” unless otherwise stated on the cover.
The following internet link provides further remarks on our financial analyses:
http://www.berenberg.de/research.html?&L=1&no_cache=1
Legal disclaimer
This document has been prepared by Berenberg Bank. This document does not claim completeness regarding all the
information on the stocks, stock markets or developments referred to in it.
On no account should the document be regarded as a substitute for the recipient procuring information for
himself/herself or exercising his/her own judgements.
The document has been produced for information purposes for institutional clients or market professionals.
Private customers, into whose possession this document comes, should discuss possible investment decisions with
their customer service officer as differing views and opinions may exist with regard to the stocks referred to in this
document.
This document is not a solicitation or an offer to buy or sell the mentioned stock.
The document may include certain descriptions, statements, estimates, and conclusions underlining potential market
and company development. These reflect assumptions, which may turn out to be incorrect. Berenberg Bank and/or its
employees accept no liability whatsoever for any direct or consequential loss or damages of any kind arising out of the
use of this document or any part of its content.
Berenberg Bank and/or its employees may hold, buy or sell positions in any securities mentioned in this document,
derivatives thereon or related financial products. Berenberg Bank and/or its employees may underwrite issues for any
securities mentioned in this document, derivatives thereon or related financial products or seek to perform capital
market or underwriting services.
Analyst certification
I, John Guy, hereby certify that all of the views expressed in this report accurately reflect my personal views about
any and all of the subject securities or issuers discussed herein.
In addition, I hereby certify that no part of my compensation was, is, or will be, directly or indirectly related to the
specific recommendations or views expressed in this research report, nor is it tied to any specific investment
banking transaction performed by Berenberg Bank or its affiliates.
I, Bassel Choughari, hereby certify that all of the views expressed in this report accurately reflect my personal views
about any and all of the subject securities or issuers discussed herein.
In addition, I hereby certify that no part of my compensation was, is, or will be, directly or indirectly related to the
specific recommendations or views expressed in this research report, nor is it tied to any specific investment
banking transaction performed by Berenberg Bank or its affiliates.
131
Sporting Goods
Remarks regarding foreign investors
The preparation of this document is subject to regulation by German law. The distribution of this document in other
jurisdictions may be restricted by law, and persons into whose possession this document comes should inform
themselves about, and observe, any such restrictions.
United Kingdom
This document is meant exclusively for institutional investors and market professionals, but not for private customers.
It is not for distribution to or the use of private investors or private customers.
United States of America
This document has been prepared exclusively by Berenberg Bank. Although Berenberg Capital Markets LLC, an
affiliate of Berenberg Bank and registered US broker-dealer, distributes this document to certain customers, Berenberg
Capital Markets LLC does not provide input into its contents, nor does this document constitute research of
Berenberg Capital Markets LLC. In addition, this document is meant exclusively for institutional investors and market
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customers.
This document is classified as objective for the purposes of FINRA rules. Please contact Berenberg Capital Markets
LLC (+1 617.292.8200), if you require additional information.
Third-party research disclosures
Company
Disclosures
adidas AG
Puma AG
no disclosures
no disclosures
(1)
(2)
(3)
(4)
(5)
Berenberg Capital Markets LLC owned 1% or more of the outstanding shares of any class of the subject
company by the end of the prior month.*
Over the previous 12 months, Berenberg Capital Markets LLC has managed or co-managed any public
offering for the subject company.*
Berenberg Capital Markets LLC is making a market in the subject securities at the time of the report.
Berenberg Capital Markets LLC received compensation for investment banking services in the past 12 months,
or expects to receive such compensation in the next 3 months.*
There is another potential conflict of interest of the analyst or Berenberg Capital Markets LLC, of which the
analyst knows or has reason to know at the time of publication of this research report.
* For disclosures regarding affiliates of Berenberg Capital Markets LLC please refer to the ‘Disclosures in respect of
section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG)’ section above.
Copyright
Berenberg Bank reserves all the rights in this document. No part of the document or its content may be rewritten,
copied, photocopied or duplicated in any form by any means or redistributed without Berenberg Bank’s prior written
consent.
© June 2012 Berenberg Bank
132
Sporting Goods
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134

Berenberg Capital Markets Equity Research Game plan adidas

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