Adidas Sets a Faster Pace as Sneaker Sales Sprint Amid Summer of Sport — Update

By Andrea Figueras

A firm pace in sneaker sales is spurring higher profits at Adidas as the company looks to get back on track from recent years' stumbles.

The German sportswear giant made a net profit of 190 million euros ($205.5 million) in the second quarter, up from EUR84 million in the year-earlier period, it said Wednesday. The company confirmed prereleased figures of sales up nearly 9% to EUR5.82 billion, with footwear revenue leading the charge.

Adidas and its fiercest rival Nike have both invested heavily in efforts to cash in from a summer of high-profile sporting events including the Paris Olympics as well as soccer championships in Europe and South America. Adidas's marketing expenses rose 15% in the quarter on the back of large-scale activations around major sports events, as well as new product launches.

The company didn't quantify the benefits of the soccer tournaments, which ended earlier this month, but noted huge interest from fans. Apparel sales were boosted over the quarter by jerseys related to the championships, the respective winners of which, Spain and Argentina, were both sponsored by Adidas.

"We now look forward to see this continue with great Olympics in Paris. The start has been sensational," Chief Executive Bjorn Gulden said, adding that he sees boosted sentiment for the brand globally.

Inventories fell by EUR1 billion on year, the company said. Like other sporting-goods names, Adidas has lately grappled with high inventories, particularly in North America, which have acted as a drag on revenue. The better inventory management "represents a healthy foundation to support future top-line growth," Adidas said.

Coupled with sector challenges, the company has been in transition after terminating in 2022 its successful deal with rapper Kanye West, known as Ye, following the artist's spate of erratic behavior and antisemitic comments. Adidas partnered with Ye in 2013 to design Yeezy-branded sneakers, and severing ties with the rapper and the lucrative label scuppered the company's profitability. The debacle weighed heavily on Adidas's financial performance last year and decimated its share price, with the company admitting that it had needed to regain trust among retailers. The stock has recovered this year, rising more than 30% since January.

"Adidas is undergoing fairly significant change behind the scenes," RBC Capital Markets analyst Piral Dadhania said in a note to clients.

The company's improvement contrasts with the situation of U.S. peer Nike, which in June warned that it expected to book declining sales for its fiscal year. Nike cited weaker consumer trends, notably in China.

Adidas's sales in Europe grew in the double digits in the second quarter, while in Greater China they rose nearly 10%. But the company posted a drop in North America sales due to the significantly smaller Yeezy business.

The company decided to sell its remaining Yeezy inventory rather than write it off, though this income stream still lags prior-year revenue from the label, the company said. Quarterly operating profit doubled on year to EUR346 million, with the remaining Yeezy inventory contributing around EUR50 million, Adidas said.

Adidas backed its guidance for 2024, which it has updated twice since the beginning of the year. It aims to book a sales increase in the high single digits and roughly EUR1 billion in operating profit. In the medium term, Adidas hopes to reach an operating margin of 10%, from 5.9% in the most recent quarter.

"The improved brand momentum with our consumer happened faster than we had expected," Gulden said.

The company's original targets for the year, set out in January, seemed low and left room for upgrades, analysts at Stifel said in a research note at the time.

"Gulden has consistently managed expectations to be in a position to beat and raise," they said.

Write to Andrea Figueras at andrea.figueras@wsj.com

(END) Dow Jones Newswires

July 31, 2024 05:07 ET (09:07 GMT)

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