Adidas Earnings: Share Prices Already Reflect Brighter Outlook

There were few surprises in narrow-moat Adidas’ second-quarter report as it had revealed its sales growth (9%), gross margin (50.8%), and operating margin (5.9%) results in its July 16 preannouncement. It also held to its outlook for full-year high-single-digit percentage sales growth and EUR 1 billion in operating profit. However, we think its guidance is too low given the momentum in its business, including strong jersey sales throughout the recent international football competitions, the high popularity of its "terrace-style" shoes, an expected boost from the Paris Olympics, and another EUR 150 million in anticipated Yeezy sales. Indeed, Adidas’ outlook seemingly suggests that its second-half sales growth will be lower than in the first half and that the upcoming Yeezy offering generates no profit. The firm has consistently outperformed its own outlook over the past few quarters due, in part, to overly cautious guidance related to Yeezy. Thus, we are revising our 2024 estimates to levels above company guidance. Specifically, we are lifting our forecast for sales growth and operating profit to 10% from 7% and to $1.14 billion (4.9% margin) from $994 million (4.3% margin), respectively.