Adidas lifts guidance and shares climb, partly thanks to the hottest shoes in Paris

By Barbara Kollmeyer

Adidas now sees a profit of EUR1 billion this year

Adidas shares climbed on Wednesday after the sportswear maker lifted guidance, a reprieve in the world of retail, where a steady stream of downbeat news has been dogging the sector lately.

Pre-announcing second-quarter results, Adidas (XE:ADS) reported an 11% rise on a constant currency basis against the prior year, up 16% excluding Yeezy sales. After a better-than-expected quarterly performance "and considering the current momentum," the Germany company said it now sees revenues rising at a high-single-digit percentage rate this year, with profit reaching around EUR1 billion ($1.09 billion) from a previous forecast of EUR 700 million ($765 million).

"These results largely confirm our view that adidas has idiosyncratic brand and product momentum that is not fully reflected in consensus expectations, and underpins our positive equity view on the stock," said Piral Dadhania, analyst at RBC, in a note to clients.

Dadhania said they continue to expect "top-line acceleration" in the second half as the business builds on current momentum from its highly popular Terrace shoes to apparel.

The Terrace shoe, under names such as Samba or Spezial Light, was originally made for soccer and handball players, but has been increasingly popular in recent years. A day earlier, the online Spanish edition of Bazaar raved about how the retro-style shoe was the most spotted on the streets of Paris and beloved by stylists (and on sale for 35 euros thanks to Amazon Prime, it notes).

Bryan Garnier's Cédric Rossi referred to the Germany company's "relentless recovery," saying the second-straight rise 2024 guidance has convinced them that Adidas' "recovery is solid," as they upped shares to a buy rating. "Its innovation cycle is still in a ramp-up phase combined and go-to-market execution is stronger," he said.

Analysts at UBS noted that underlying earnings before interest and taxation was a solid beat on expectations, even with around a EUR50 million benefit from Yeezy versus EUR150 million in the prior year.

Adidas said its gross margin reached 50.8% in the second quarter from 50.9% in the year ago period, with operating profit rising to EUR346 million from EUR176 million, including EUR50 million from the sale of parts of the remaining Yeezy inventory.

Adidas cut ties with Yeezy creator Ye, the artist formerly known as Kanye West, after he made a string of antisemitic remarks in 2022, and estimated it had $1.2 billion in Yeezy inventory, and would donate some of its profits to charity.

Shares of Adidas rose nearly 4%, with rival Puma (DE:PUMA) up 2.3%. The week has been rough for retailers notably at the high end, with warnings from Burberry (UK:BRBY) and Swatch (CH:UHR), as well as Hugo Boss (XE:BOSS), with complaints of tough China markets as the consumer overall looks to be a little less extravagant these days.

-Barbara Kollmeyer

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07-17-24 1001ET

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