Lululemon made its much-anticipated footwear debut Tuesday as Cowen downgraded Nike on supply fallout from Russia’s Ukraine invasion. Adidas, meanwhile, shook up Asia-Pacific leadership ahead of Wednesday’s earnings report showing a marked decline in China, where last year’s consumer-led and state-sanctioned boycott of Western brands speaking out against Xinjiang sourcing continues to hamper the German performance label’s business in the world’s second-biggest economy.
Vancouver-based Lululemon announced four women’s footwear silhouettes after teasing the new category for nearly three years. The yoga-centric company assembled top-tier talent to execute the product expansion, tapping footwear leaders who honed their chops at Nike, Adidas and Under Armour, according to patent documents. It also designed each shoe with a female-first approach, according to chief product officer Sun Choe, who said the brand’s entrée “solve[s] for the fact that, more often than not, performance shoes are designed for men and then adapted for women.”
The public on Tuesday got its first look at the inaugural product, the Blissfeel running sneaker that will be available for purchase starting March 22 in the U.S., UK, and China. The Chargefeel cross-trainer, Restfeel “post-workout” slide, and Strongfeel trainer will arrive later this year through the fall season.
NPD Sneakernomics expert Matt Powell has long been bullish on Lululemon’s chances to not just catch but lap Nike in the women’s activewear market, even before the Chip Wilson-founded company best known for leggings ever made a sneaker available for sale. He pegged Lululemon as an emerging sneaker brand to watch, along with rising labels Nobull and APL.
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Though Lululemon has invested in sustainable materials in recent years, the company made no mention of any eco-friendly components going into the footwear quartet. “[E]nergy-filled underfoot foam cushioning technology” powers Blissfeel wearers through long runs, it said. Lululemon did not respond to requests for comment.
Still, the company believes it’s filling a gap in the market by designing with women’s needs in mind. “Innovating for women is in Lululemon’s DNA—now we’re bringing that same expertise to footwear, and women were part of this journey every step of the way,” Choe said. A men’s footwear launched is slated for 2023.
Nike most exposed?
Though Cowen analysts on Tuesday downgraded their share price targets for Adidas, Puma and Nike, the latter suffered the biggest hit on headwinds linked to cotton prices, oil-based inputs like polyester and steep ocean and air freight costs. The investment firm also warned that European accounts are beginning to cancel orders.
Cowen’s analysis suggests Nike stands to lose the most from Russia’s Ukraine invasion and ongoing market and supply chain turmoil. The firm pulled back on its outlook, revising its share price target to 144 euros ($160) from 192 euros ($213), or a 44 euro ($49) change. Adidas’s stock saw a less dramatic revision, a 34 euro ($38) downward edit, while Cowen’s calculations indicate Puma stands to face limited repercussions from supply chain challenges. The analyst trio of John Kernan, Krista Zuber and John Cardoso pegged Puma’s share price target at 86 euros ($95) from 96 euros ($106).
While many company executives have told Wall Street analysts they believe bloated supply chain costs should let up in the second half of the year, Cowen analysts dismissed this “unrealistic” outlook.
“While air freight usage may decline as inventory flows normalize, the remainder of these headwinds do not have a perceivable catalyst for moderation,” they wrote.
What’s more, Cowen said traffic and Google Trends data comparing 2022 to 2019 points to “robust consumer interest” in Puma (up 96 percent) and Lululemon (up 52 percent). Interest in Nike is up a more modest 23 percent while Adidas’ traffic “materially” lags at -4 percent, analysts noted, suggesting stubborn challenges ahead for the Yeezy maker.
Adidas shakes up China leadership
Adidas on Wednesday confirmed a changing of the guard atop its Greater China leadership team. Adrian Siu, who started his career with the German company 20 years ago, will replace Jason Thomas as managing director of Adidas Greater China next month and oversee global sales. Thomas will move into the position of senior vice president of global franchise, a new role for the company.
The shakeup comes as Adidas aims to reverse a steep China sales slump stemming from the athletic brand’s outspoken stance on sourcing from Xinjiang, where overwhelming evidence suggests a state-run scheme forcing Uyghurs and other Muslim minorities to pick cotton and engage in other labor against their will.
The No. 2 footwear giant continues to face an uphill battle in China, where fourth-quarter currency-neutral revenue shrank 24 percent amid a “challenging market environment,” it said. Revenue declined a respective 6 percent and 4 percent in Asia-Pacific and North America, while EMEA and Latin America saw their numbers rise 15 percent and 9 percent, respectively, amid an overall 3 percent revenue stepback.
Adidas said Vietnam lockdowns and other Covid-19 disruptions shaved 400 million euros ($443 million) in fourth-quarter revenue from its results.
Despite the tough quarter, Adidas expects an uptick in sales and revenue this year. The company factored 250 million euros ($286 million) in Russia-area revenue exposure into its outlook for an 11 percent to 13 percent global sales increase in 2022. On the revenue front, it projects a mid- to high-teens increase for North America and Latin America, with mid-teens growth for EMEA and Asia-Pacific.
The picture looks a little different in the broader China region. “Greater China is expected to record a sales increase in the mid-single digits as the company continues to make progress with its action plan aimed at stabilizing the business and re-igniting growth,” Adidas said.
Adidas shelled out 51 percent more on capital expenditures last year, spending 667 million euros ($738 million) to remodel and launch stores, strengthen technology platforms and fuel e-commerce, which saw revenue climb 4 percent for the year and 39 percent over the same 2019 quarter. Revenue in Adidas’ owned digital channels shrank 2 percent against a tough 2020 comparison.