Thursday Apr 18 2024 13:15
5 min
German athletic apparel maker Adidas' fiscal first-quarter revenue report suggests that the company's recovery strategy is beginning to show results after a downturn in 2023.
Adidas’ Q4 report, released in mid-March, registered the firm’s first annual loss in over three decades, and projected a decline in North American sales. The pre-release for Q1 2024, however, appears to indicate a potential turnaround for the company.
Adidas has now issued pre-releases of its results — called "ad hoc" announcements in Germany — for the past four consecutive quarters.
In its latest report, Adidas announced a 4% increase in revenue to €5.5 billion ($5.85 billion) for Q1 2024, surpassing analysts' expectations of €5.4 billion, according to FactSet data cited by MarketWatch.
The company also reported a significant improvement in its gross margin, which rose 6.4 percentage points to 51.2%, and an operating profit of €336 million, which exceeded the forecasted €290 million and marked a substantial rise from €60 million a year ago.
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Adidas upped its full-year guidance, now expecting full-year operating profit of around €700 million, compared with previous guidance of around €500 million. The update was made due to a projection of mid- to high-single-digit sales growth at constant currencies, compared with previous guidance for mid-single-digits growth.
In a comment on the results cited by MarketWatch, Cristina Fernandez, an analyst at equity research and brokerage firm Telsey Advisory Group, noted:
“The positive Q1 2024 result shows Adidas has turned the corner with accelerating brand heat and cleaner inventory, which has allowed it to reduce the level of discounting in the marketplace”.
Fernandez increased her price target for Adidas stock to €225 from €205, maintaining a Market Perform rating. Despite a more than 30% increase in the stock price over the past year, Fernandez also cautioned that the shares might already reflect many of the recent improvements.
Adidas stock traded on the Frankfurt Stock Exchange climbed over 9% to €220 on Wednesday, while the company’s U.S.-listed American depositary receipts (ADRs) saw a 5.6% increase. German equities closed little changed on Wednesday, with the blue-chip DAX index up barely by 0.02%, largely boosted by the Adidas stock gain.
This surge in investor interest towards Adidas is a sharp contrast to the pullback in Nike and Lululemon Athletica stocks, both of which recently warned of a potential slowdown in the athletic-apparel market. Earlier this year, Adidas itself had indicated a softening demand in North America, a critical market for the Bavaria-headquartered firm.
However, the latest earnings figures suggest that Adidas' offerings continue to attract consumer interest. Wedbush analyst Tom Nikic attributed much of this growth to robust demand for Adidas’ retro styles, including the Samba and Gazelle sneaker models.
Nikic maintains a Neutral rating on Adidas stock with a €200 price target.
In a note to clients cited by MarketWatch, Nikic wrote:
“We do have to give credit to CEO Bjorn Gulden and team for sowing the seeds of a turnaround that’s making good progress”.
At the time of writing on April 18, Adidas stock on the Frankfurt Exchange was up 0.91% at €222. The stock has risen close to 22% year-to-date, beating out the DAX index’s rise of 5.9% in the same timeframe.
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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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