In 2024, the stock market trajectories of two of the world’s most iconic athletic brands, Nike and Adidas, have diverged significantly.
While Adidas AG has seen a steady rise since the beginning of the year, Nike has faced a downturn, trading at levels not seen since the early days of the Covid-19 pandemic.
What are the underlying reasons for Nike’s struggles and Adidas’ successes, and what does the future hold for both companies?
Nike’s Struggles in 2024
Nike’s weak performance in 2024 is driven by several critical factors.
The company has faced a slowdown in growth and issued weak guidance for fiscal year 2025, which has already begun.
In late June, Nike shocked investors by predicting a 10% decline in sales for the ongoing quarter, far worse than the expected 3% drop.
This announcement exacerbated an already dire situation, leading to a 31.71% year-to-date decline in Nike’s stock, with a significant 23.39% drop in the last 30 days alone.
The most substantial decline occurred between June 26 and 27, when shares plummeted from $94.19 to $75.34. At the time of writing, Nike’s stock price stands at $73.40.
Additionally, Nike’s overcommitment to online commerce has backfired, with a 10% year-on-year decline in digital revenue and inventory buildup issues, further contributing to its current slump. This stagnation, coupled with inventory buildup from supply chain disruptions, led to a peak inventory of $9.7 billion by the end of 2022. To address this, Nike offered discounts, which, while reducing inventory, also impacted profit margins.
Additionally, Nike’s decision to sever ties with major wholesale retailers like Urban Outfitters and Macy’s in 2021 further strained its sales channels. Despite re-establishing some of these relationships in 2023, the damage had been done.
The company’s struggles in the Chinese market, a significant revenue source, have also contributed to its current slump.
Adidas’ Success in 2024
In stark contrast to Nike, Adidas has experienced a triumphant 2024.
The German footwear giant has been on an upward trajectory since January 2, driven by strong growth, particularly in its retro-style sneakers.
In mid-April, Adidas impressed investors with a robust earnings report, propelling its shares from approximately €202 to €226. More recently, in mid-July, Adidas provided optimistic guidance, forecasting a significant increase in operating profits from €700 million to €1 billion.
This positive outlook has further bolstered investor confidence, resulting in a 30.12% year-to-date increase in Adidas’ stock. Early trading on July 17 hinted at another strong day for the shoemaker, with the stock price standing at €237.10 at the time of publication.
Adidas’ ability to consistently deliver strong performance and exceed market expectations has positioned it favorably in the eyes of investors, making it a standout performer in the athletic apparel and footwear industry in 2024.
Investment Opportunities and Future Outlook
Despite its current struggles, Nike presents a potential investment opportunity.
Trading at a five-year low price-to-earnings ratio of 19.1 times, Nike’s shares appear undervalued. The company’s strong balance sheet and dominant market position, generating twice the revenue of its closest competitor, Adidas, provide a solid foundation for recovery.
On the other hand, Adidas’ consistent performance and optimistic profit forecasts make it an attractive investment. With its stock up 30.12% year-to-date, Adidas continues to demonstrate strong growth potential. Investors should consider both companies’ strategic initiatives and market positions when evaluating future investment opportunities.
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