(Bloomberg) -- No matter how Germany fares during Euro 2024 over the coming three weeks, an era of sorts will end for the host country’s football team and one of its best-known brands: Die Mannschaft will play its last European championship tournament match in Adidas uniforms.

Adidas AG’s loss of such a prominent sponsorship to archrival Nike Inc., announced earlier this year, would’ve been unthinkable not long ago, when the team and the sportswear maker were bound together by what Chief Executive Officer Bjorn Gulden once described as an almost “emotionally inseparable,” seven-decade relationship.

Yet setbacks and stumbles piled up for Adidas before Gulden arrived last year, ranging from a boycott of Western brands in China to the demise of the company’s partnership with rapper Ye after his anti-Semitic comments. Under the new CEO’s watch, other headaches have occurred, including a flap over numbers on the German football uniforms that were said to resemble the Nazi SS insignia and, just this month, allegations of corruption in China.

In his first 18 months, Gulden has been able to ride out these problems, propelled by the Samba shoe’s hot sales streak. The stock has more than doubled from when he was announced as the new boss. But investors are increasingly wondering how far Gulden’s reliance on gut instinct, which has led to some smart choices with regard to the product lineup already, will carry the company or whether it could create new vulnerabilities in the future.

“He’s managing it in a more intuitive way; it’s hard to see any long-term strategic plan,” said Ingo Speich, a portfolio manager with Deka Investment in Frankfurt. “Time will show if that’s enough going forward or if maybe he has to announce further details about where growth is going to come from.”

The Norwegian boss offers a marked contrast to his Danish predecessor Kasper Rorsted, a numbers-driven executive who watched his intricately crafted strategy to juice profits unravel in the face of crises inside and outside the company.

Arriving in January 2023 from smaller rival Puma SE, Gulden — who declined to be interviewed for this story — set out to restore optimism to the beleaguered business. He’s sped up the introduction of new footwear and apparel lines, rebuilt relationships with retail partners and hammed it up with celebrities and top athletes, both on the company’s campus and on his Instagram feed.

“Bjorn was the right person at the right time,” says Justin Hance, a partner at Harris Associates LP in Chicago, a top shareholder. Hance lauds Gulden’s efforts to focus less on financial targets for now, and more on the fast-changing desires of consumers and retailers. “It’s hard to imagine someone coming in and having done much better in this period of time.”

Samba Craze

From his first days at Adidas, Gulden insisted that the company hadn’t stopped coming up with appealing products during the dark days. He pointed to recent collaborations with luxury partners including Gucci, Moncler and Balenciaga — even though the brand had failed to capitalize commercially on the buzz around them.

Gulden accelerated the rollout of the classic Samba shoes, which had been appearing on the feet of celebrities including Bella Hadid and Kendall Jenner. Within months, it was clear that the footwear — along with similar “Terrace-style” shoes like the Gazelle and Spezial — would take off.

The Samba craze has helped Gulden make progress with another of his early objectives — returning Adidas to working with retail partners. The previous strategy focused on Adidas’s digital and direct-to-consumer sales channels, where it doesn’t have to share profits with middlemen. Frustrated retailers, which couldn’t get their hands on enough of Adidas’s best products, turned to smaller brands including On Holding AG and Deckers Outdoor Corp.’s Hoka.

“If you went to Dick’s Sporting Goods like six months or a year ago, they didn’t really have that much Adidas,” said Cristina Fernandez, an analyst at Tesley Advisory Group in New York. “As the trends started to pick up last year, the retailers felt more comfortable ordering and thinking, like, with the footwear doing better, that was going to drive apparel sales” too.

What’s more, after Gulden initially warned investors that Adidas might have to write off its $1.3 billion inventory of Yeezy footwear, much of it has been sold, helping him repeatedly exceed his conservative financial targets. Adidas currently forecasts an operating profit of €700 million ($749 million) this year, after upgrading guidance from €500 million in April. Yet analysts are expecting the figure to exceed €1 billion.

In the first quarter, sales jumped by 8% overall, and 5% excluding the diminishing Yeezy stockpile. 

Gulden has suggested that this momentum will pick up, yet has also asked investors to show patience. He’s repeatedly suggested — though without putting a firm date on it — that Adidas should be able to achieve double-digit sales growth and operating profit margins of at least 10%.  

China Concerns

China is one potential speed bump. Consumer anger over western brands’ concerns about cotton from Xinjiang, the province where China is accused of human-rights violations against the Uyghur minority, has bubbled for several years. Separately, Adidas this past week said it was investigating allegations of corruption among some marketing staff in the country. 

Homegrown brands like Anta Sports Products Ltd. and luxury names including Dior have gained market share. Adidas has said it’s speeding up its supply chain in the country to cater to fast-changing customer tastes.

“When I was in middle school, I thought brands like Nike and Adidas were very nice — it’s like a tag of being fashionable,” said Chen Jingfang, founder of an influential Weibo account with more than 3 million followers. Now, she’s more likely to buy a pair from On or LuluLemon Athletica Inc., she said.

There’s also the question of how and when Adidas will attempt to follow up on its current sneaker hits and keep its fashion buzz. Gulden suggested earlier this year the return of its retro Superstar basketball shoes would have to wait, because of rising demand for the football-inspired Samba.

Globally, Gulden wants to reinstate Adidas as the world’s “best sports brand,” with the name visible in most Olympic sports and prominent in areas where he succeeded with Puma, including cricket and Formula 1 auto racing. But there’s still work to be done in the three key categories of running, basketball and football.

Adidas scored a clear winner at the top end of the running market with its Adizero Adios Pro Evo 1, a 138-gram racing shoe that costs $500 and is designed to be worn for as little as one race. Adidas released the footwear in September — two years ahead of the original schedule — and within days, Ethiopia’s Tigst Assefa wore them in Berlin while smashing the women’s marathon world record. Yet everyday runners have embraced shoes from the likes of On, Hoka and Brooks.

Then there’s basketball, where Nike has dominated for decades. Adidas is currently benefiting from its hottest-selling product in years with the Anthony Edwards signature shoe, which Foot Locker Inc. has highlighted as a top seller.

When it comes to football, the deeper-pocketed Nike has used its heft to buy up sponsorships. On the loss of the German national tie-up, Gulden has made clear his head overuled his sport-loving heart, saying the US rival’s $100 million-a-year reported commitment far exceeded what his business considered smart.

“You just have to accept that sometimes some people pay too much,” he told shareholders at Adidas’ annual meeting in May. His firm will run out its existing contract, he said, “and then we’ll laugh.”

Poonam Goyal, an analyst at Bloomberg Intelligence, pointed to other big clubs like Chelsea FC that once played in Adidas and are now wearing Nike. France has also switched. “While they could win some of them back, they have to pay for them. And if Nike shows interest in the teams that they’re trying to win back, I just think Nike will pay more.”

Nike pulled away from Adidas as the world’s biggest sports brand in the 1990s and last year boasted about twice as much total revenue. Gulden may have a rare opportunity to close the gap. The US company is struggling to bring out new products and cut reliance on its Jordan brand, and has resorted to staff cuts.

“Gulden can use this weakness of Nike to get closer, so that they are getting larger and can pay bigger contracts,” said Thomas Joekel, a portfolio manager at Union Investment in Frankfurt, a top-10 investor. “Gulden knows that scale matters in this industry and he probably will try to seize this chance.”

--With assistance from Lulu Shen.

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