Adidas Stock Has Had A Rough Go With Kanye West. And Now It's Making A Comeback

Sportswear companies have recently scored significant victories, a trend that appears to be reaching Adidas, which had previously been a laggard in the group.

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Other consumer-discretionary companies reported mixed fourth-quarter results, and cautious optimism has dominated the broader landscape. However, athletic companies have reported strong earnings and provided upbeat forecasts.

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For a while, it appeared as if Adidas ADDYY +0.23% was missing out. The company (tickers: ADS.Germany, ADDYY) warned in February that its fourth-quarter results would be dismal, and they were. The company reported a loss of €482 million ($526 million) and announced a dividend cut.

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Adidas is dealing with several issues. It severed ties with Kanye West at great expense after the musician made anti-Semitic remarks. It has also fallen out of step with Chinese consumers and lost contracts as a result.

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It's no surprise that the stock has dropped more than 19% in the last year, while main rival Nike NKE -0.56% (NKE) and the S&P 500 have only seen single-digit losses.

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However, the year 2023 is a different story.

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Adidas stock has increased by more than 28% since the beginning of the year. The stock dropped after the February warning, but it quickly recovered and didn't even pause after the March report confirmed large losses. Its American depositary receipts have reached new year-to-date highs as of Thursday's close of $89.78.

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If the current bullish trading pattern continues, the stock could return to the $100 level. That would still leave the shares behind where they were in 2021, when they hit all-time highs, approaching $190.

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Nonetheless, the tide may be turning in favor of Adidas. It took a necessary hit by severing ties with West, but it will still sell sneakers with price tags in the four digits thanks to partnerships with luxury brands like Gucci.

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It has a slew of other celebrity collaborations, the most recent being with musician Bad Bunny. Meanwhile, its Samba brand—the 2022 sneaker—remains a favorite of supermodels and fashionistas.

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More broadly, consumers appear content to keep spending on athleisure gear despite persistently high inflation, leaving other apparel and specialty retailers with mixed results. This is good news for both Adidas and its competitors.

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This is not to imply that Adidas's future is a walk in the park given the ongoing challenges posed by its weak Chinese sales and the difficulty of managing unsold Yeezy sneakers after cutting ties with the West. On the secondary market, the brand is still making a ton of money, but not for the business.

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Nevertheless, everyone enjoys an underdog.

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