Adidas' new 'Mr Perfect' faces hurdles

Adidas' incoming chief Kasper Rorsted faces major challenges when he takes over as the global sports brand's new CEO later this year as the company struggles to catch up with arch-rival Nike, analysts said.

Investors feted the announcement on Monday that Adidas had successfully poached the 53-year-old Dane from consumer chemicals giant Henkel, with the group's shares the biggest gainers on the Frankfurt stock exchange.

"The reaction on the stock market speaks for itself," said a spokesman for Union Investment, a fund that is one of Adidas' 20 biggest shareholders.

Rorsted, who speaks impeccable German and is a fan of Bayern Munich football club (which Adidas sponsors), had long been mooted as a possible candidate in the sports brand's year-long hunt for a new CEO to replace Herbert Hainer.

Over the past 18 months, Adidas has had to issue two profit warnings and lost key ground to its chief competitor Nike, even being overtaken in the key US market by upstart Under Armour.

Rorsted "has done a good job as CEO at Henkel. It's a good choice," said Commerzbank analyst Andreas Riemann.

Henkel makes a range of well-known household products, from Persil washing powder and Loctite glue to Schwarzkopf haircare products. And during his captaincy, the group has streamlined its sprawling portfolio of brands, boosted profitability and been able to keep up with competitors such as Unilever and Procter & Gamble.

- 'Very suitable replacement' -

"Rorsted is seen as a very suitable replacement for Hainer given his leadership record at Henkel and re-establishing the latter as a 'growth group'." said Equinet analyst Mark Josefson.

"His eight years tenure saw a mixture of structural re-positioning, good organic growth and sensible bolt-on acquisitions –- a profile that will also be helpful for sentiment at Adidas."

Rorsted, who began his career in the IT sector in companies such as Oracle, Compaq and Hewlett Packard, has earned himself a reputation as "Mr Perfect".

And as an experienced long-distance runner, he will need an athlete's stamina in his new position at Adidas.

His main challenge, according to Cedric Rossi, an analyst at Bryan, Garnier and Co investment bank, will be to "ensure sustainable growth in the United States".
It was there that the 61-year-old Hainer ran aground.

Hainer has been at the helm since 2001, making him the longest-serving chief executive among the 30 companies on Germany's blue-chip DAX index. And his track record has been generally impressive.

"Under his leadership, Adidas group sales have tripled, net income and the number of employees have quadrupled and the value of the company has increased from 3.0 billion euros ($3.3 billion) to 18 billion euros," said supervisory board chief Igor Landau.

"However, he has been under pressure in recent years following the slow progress made with Reebok -- which was 'his' acquisition that was meant to narrow the gap to Nike -- as well as missing" medium-term group targets, said Equinet's Josefson.

Rorsted will have to decide whether to hold on to Reebok, as well as its golf brands.

- 'End to dry period' -

At Union Investment, fund managers hope that the arrival of a new CEO will mark "the end of the dry period for Adidas in terms of profitability".

Last month, the group's chief financial officer Robin Stalker warned that the strong dollar will lead to sharply increased costs this year.

Rorsted will shadow Hainer during a two-month transition period starting in August and the two men are reported to be friends.

Adidas has launched a new strategy to lift sales to 20 billion euros by 2020. In a bid to gain ground in the United States, it has signed up 500 athletes from American football and baseball, including NBA star Jamese Harden and quarterback Aaron Rodgers.

It is also mulling the sale of all or part of its golf activities.

Its efforts are beginning to bear fruit, with Adidas shares putting in the best performance in the entire DAX index in 2015, winning the company a new investor in the person of Egyptian billionaire Nasser Sawiris.

Rorsted's challenge will be to make his mark on the group, while continuing to pursue the new strategy plan, said Rossi at Bryan, Garnier and Co.

"But he wouldn't have accepted the job, if he didn't agree with the goals," the analyst concluded.

Source: AFP