Adidas raised its full-year sales and profit guidance for the third time this year, citing a better-than-expected performance in the third quarter and good brand momentum as it benefits from demand for its retro three-striped Samba and Gazelle shoes.
For the third quarter, Adidas said currency-neutral revenues increased 10 percent compared to the prior year. In euro terms, the company’s revenues grew 7 percent to €6.44 billion from €6.00 billion in the year-ago Q3 period. Excluding Yeezy sales in both years, currency-neutral revenues jumped 14 percent during the quarter.
Adidas reported that gross margin in the third quarter increased 2.0 percentage points to 51.3 percent of net sales in Q3, compared to 49.3 percent in Q3 2023. The year-over-year increase of the underlying Adidas gross margin was said to be even stronger. The company’s third quarter operating profit increased to €598 million, compared to €409 million in the 2023 Q3 period, including a contribution of around €50 million from selling portions of the remaining Yeezy inventory.
Adidas increased its guidance for the full year to reflect the better-than-expected quarter’s performance and the current brand momentum. Adidas now expects currency-neutral revenues to increase at a rate of ~10 percent in 2024 after previously forecasting a high-single-digit percentage for the year. The company’s operating profit is now expected to reach a level of ~€1.2 billion, up ~20 percent from the No. 2 sneaker company’s previous forecast to reach a level of ~€1.0 billion for the year.
At the start of the year, Adidas forecasted currency-neutral sales would grow at a mid-single-digit rate and operating profit would reach around €500 million.
Adidas has been riding a turnaround led by Bjorn Gulden, Puma’s former boss, who became CEO at the start of 2023. He has focused on restoring Adidas’ roots in sports, following the brand becoming overly associated with a lifestyle brand and focusing on speed to market. However, the return of Adidas’ retro “terrace” shoes, such as the Samba, a soccer shoe popular in the 1970s, has helped Adidas gain market share from its arch-rival, Nike, which reported a 10.4 percent drop in sales in its most recent quarter.
Adidas said its guidance assumes the sale of the remaining Yeezy inventory during the remainder of the year to occur, on average, at cost. This would result in additional sales of around €50 million and no further profit contribution in the fourth quarter. Adidas initially benefited from significant demand for Yeezy’s remaining sneakers following the break-up with rapper Ye two years ago, but lately, it has offered discounts on the product.
In a note following news of the raised guidance, Cristina Fernandez, at Telsey Advisory, said Adidas’ second-straight quarter of double-digit growth gives her confidence that the momentum for the Adidas brand can continue in the fourth quarter and into 2025. She stated, “4Q24 and 2025. This is driven by a resurgence in demand for adidas lifestyle shoes that should provide a halo for performance footwear and apparel. adidas also stands to benefit from the lower demand for core Nike lifestyle franchises—Air Force 1, Dunk, and Air Jordan 1. The guidance raise from what has been a conservative management team should support the stock and give confidence that adidas is well on its path to reach its targets of DD annual growth through new products, better storytelling, and improved distribution with wholesale partners, and return to an operating margin of 10 percent by 2026.”
On Monday, John Kernan, an analyst at TD Cowen, raised his estimates and price target on Adidas as his team’s research – including Google search trends, recent store checks and proprietary survey work – shows the brand’s momentum continuing into holiday. He cited strength in Terrace in lifestyle and Adidas’ performance product pipeline in running, basketball and soccer gaining traction.
Kernan said in a note, “Terrace trend (Samba, Gazelle, etc.) is resonating with consumers at a time when Nike is pulling back supply of its core classics (Jordan, Dunk, AF1). Adidas’ recent innovations in performance running and efforts to gain shelf space in the channel are another hurdle to Nike regaining lost share. That said, the lapping of the Terrace trends and the 2024 sport year will be difficult.”
Image courtesy Adidas
