Adidas shares rise 8% after first-quarter profit hike, improved outlook

KEY POINTS

• Shares of Adidas jumped 8% on Wednesday after the company unexpectedly raised its full-year guidance and reported a year-on-year profit increase in the first quarter.
• The firm raised its full-year revenue and operating profit guidance on the back of the results.

Adidas experienced a significant surge in its share value, jumping by 8.2% on Wednesday. The boost came after the company delivered an unexpected increase in its full-year guidance and reported a year-on-year profit rise for the first quarter.

The German sportswear giant revised its outlook, now anticipating currency-neutral revenues to grow at a mid-to-high-single-digit rate for the full year 2024. This upward revision contrasts with its previous projection of growth near a mid-single-digit rate. This positive adjustment reflects Adidas' confidence in its ability to capitalize on market opportunities and drive sustained growth throughout the year.

In an unscheduled trading update released late on Thursday, Adidas announced that it anticipates operating profit for the year to reach approximately 700 million euros ($745 million). This revised figure represents a significant increase from its previous forecast of operating profit near 500 million euros.

Adidas has been actively divesting its unprofitable Yeezy inventory following the termination of its partnership with Ye, the rapper formerly known as Kanye West. The company revealed that it foresees additional sales of around 200 million euros from the remaining Yeezy inventory throughout the remainder of the year.

This strategic move to offload Yeezy inventory aligns with Adidas' efforts to streamline its product offerings and focus on more profitable ventures, contributing to its improved financial outlook for the year.

According to preliminary figures, Adidas reported a notable increase in first-quarter operating profit, reaching 336 million euros, compared to 60 million euros in the same period last year.

However, the company cautioned that unfavorable currency effects are anticipated to have a significant impact on its profitability throughout the year. This is expected to affect both reported revenues and the development of gross margins. Despite the strong performance in the first quarter, Adidas is preparing for challenges stemming from currency fluctuations, which could potentially dampen its financial performance in the coming quarters.

Adidas experienced a transition period in 2023 following the loss of revenue from Yeezy sales. In March, CEO Bjørn Gulden expressed optimism, anticipating some growth in the first quarter, which he expected to strengthen further in the second half of the year.

The underlying sales growth from Yeezy products underscores the "rapidly accelerating momentum" of the Adidas brand, as noted by UBS analysts. The company's guidance and continued expectation of improved sales growth throughout the year are likely to be well-received by the market. This positive outlook positions Adidas as one of the "best earnings momentum stories in the space," according to analysts, reflecting investor confidence in the brand's ability to navigate challenges and drive sustained growth.

Adidas is looking to leverage its partnerships with major sporting events such as the Olympics, Paralympics, EURO 24, and Copa events to bolster its performance this year. These collaborations are expected to provide a significant boost to the company's visibility and sales.

Consumer discretionary analyst Mamta Valechha from Quilter Cheviot highlighted the potential of Adidas' Terrace footwear brand to drive momentum across other franchises. Valechha noted that with a busy summer sporting calendar ahead, Adidas is focusing on investing in performance shoes, particularly in the running and basketball segments. Cleaner inventories also suggest increased demand for Adidas products among retailers, indicating a positive trend for the brand's growth trajectory.

Source: CNBC‍