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The Rorsted Era Has Begun at Adidas, But Where Does the Brand Go From Here?

Adidas is on a hot streak, and is looking to incoming CEO Kasper Rorsted to keep it going.

Rorsted officially took over the role of chief executive on Saturday from outgoing CEO Herbert Hainer, who has been with Adidas AG since 2001.

Hainer’s leadership helped lead the German company to a major comeback in the US market, where in its most recent quarter it posted 26 percent sale growth and surpassed Under Armour to become the nation’s second-largest sportswear brand.

Lead by the success of its Stan Smith trainer and Superstar basketball shoe, as well as the expansion of the Kanye West Yeezy brand, Adidas is doing so well it’s upped its financial outlook four times this year, and its share price has more than doubled over the last 12 months. It’s making Nike sweat, too.

Rorsted comes to Adidas from German consumer-products giant Henkel AG, where during his tenure he helped triple the company’s share price amid a global recession, hitting all of his financial targets.

Adidas is now hoping Rorsted can bring some of the same magic to its sportswear business, and it seems investors are excited as well. Shares of the company jumped 6.3% in January when Rorsted was first announced for the job.

But as he comes on board, he has his work cut out for him. While Adidas’ recent comeback is undoubtedly impressive, the narrative is growing old, and the company still lags far behind primary rival Nike, especially in its operating margins which need improving.

Last year Adidas posted margins of 6.5%, far behind Nike’s 13.9% margins. The company says it’s currently on track to hit margins of 7.5% by the end of 2016. Investors the Wall Street Journal spoke to said they expect Rorsted to deliver margins in the double digits in the next few years.

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Rorsted must also contend with two ballooning costs at the rapidly expanding company: sports sponsorships and a needed revamping of its retail locations.

Key to its marketing push, Adidas is aggressively courting sponsorship deals with top teams and athletes, which amounts to a lot of money. Two years ago, Adidas agreed to spend £75 million ($97 million) a year to sponsor Manchester United, the British soccer club which until that point was sponsored by Nike.

Stateside, the company currently sponsors around 20 athletes in both the NFL and MLB, but the brand is planning to sign up to 250 players in both leagues within the next three seasons, and may be planning to use its Yeezy brand as a sort of trojan horse to do so.

On top of this, Adidas’ retail locations may be in need of an update as well, many of which are aged and some of which are poorly located. John Guy, an equity analyst at MainFirst Bank, told WSJ some Adidas stores in the US look as if they are “an homage” to the 1990s.

“Mr. Rorsted needs to do it all,” Guy said. “Save money, sustain strong top-line growth and provide an incremental foothold in richer stores to improve the margin.”