Adidas: Preannouncement Highlights Comeback, but Already Reflected in Shares

Narrow-moat Adidas released preliminary second-quarter results that exceeded our estimates. The company also announced an increase in its 2024 operating profit guidance to EUR 1 billion from EUR 700 million previously. However, we rate Adidas’ shares as overvalued and are not revising our fair value estimates of EUR 168/$90 currently as our forecast for EUR 994 million in 2024 operating profit is very close to the updated guidance. Our estimate was substantially above the earlier outlook due, in part, to our expectation of a profit contribution from sales of the remaining Yeezy merchandise this year. Over the past few quarters, Adidas has consistently issued guidance that included zero profit from the discontinued brand even though significant profit was ultimately realized. Thus, we have set our expectations accordingly.