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Nike/Adidas: A Run For Your Money

By the Financial Times ( Financial Times) -- Usain Bolt v Tyson Gay. Dayron Robles v Liu Xiang. Sebastian Coe v Steve Ovett. Like many of the great sporting rivals who endorse their products, Nike (NKE) and Adidas tend to snap at each other's heels. Over a decade, it is almost a photo-finish: Nike shares up by 290%, Adidas by 270%.

Not surprisingly, robust first-quarter earnings from Nike last week prompted an almost synchronized uptick in Adidas stock. What impressed investors was the strength of Nike's sales growth. Nike brand revenues were up by 12% year-on-year once currency fluctuations were eliminated, and its future orders stand 13% higher (for the September-January period on a similar currency-neutral basis). Almost all regions kicked in, with emerging markets leading the way. But North America also posted a surprisingly strong 15% revenue increase. Pressure on margins appears to be easing off, too. The one dull spot was western Europe, where sales were flat, although that was partly due to comparisons with World Cup-inflated revenues of a year ago. Future orders are slightly ahead.

Many of these positive trends should benefit Adidas, too. It has already raised its 2011 sales forecast twice this year -- most recently in August, when it predicted a 10%, currency-adjusted rise together with stable gross margins. Investors may worry, however, that in the long term, the German company is more exposed to trends in western Europe, which accounts for 30% of revenues compared with 23% of Nike's. Moreover, like their running shoes, shares in both companies already come with a stiff price tag. Nike trades at 19 times prospective earnings, Adidas at 16 times. Given the global economic headwinds, investors should expect more of a marathon than a sprint, at least until after the next bend.

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