Adidas running shoe on track
Adidas expects growth to accelerate in H2 as it works down inventories and benefits from sporting events / Image source: Adobe
  • Full year revenues decline
  • 2024 sales seen accelerating
  • Olympics and Euros to come

Shares in German trainers-to-sports apparel giant Adidas (ADS:ETR) cheapened 2.5% to €188 in Frankfurt on Wednesday morning after the company reported downbeat full year results and delivered a lighter-than-expected operating profit forecast for 2024.

However, the trainers-to-football jerseys seller did provide more upbeat guidance for first-quarter growth than it did in January, and said it expects growth to accelerate in the second half as it works through elevated North American inventories and hopefully benefits from bumper demand for old sneaker models and major sporting events.

LIFE AIN’T YEEZY

Guided by former footballer Bjorn Gulden, the world’s second biggest sportswear manufacturer behind Nike (NKE:NYSE) is still working to recover from the discontinuation of its highly profitable ‘Yeezy’ partnership with controversial rapper Ye, formerly known as Kanye West.

Sales were down 5% to €21.4 billion in the year to December 2023, dragged lower by a 16.1% slump in North America, and dipped 7.6% to €4.8 billion in the fourth quarter, although shares in Adidas have risen almost 30% over the past year, outperforming key competitors Nike and Puma (PUM:ETR) on hopes Gulden can return the iconic company to growth.

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WHAT DID GULDEN SAY?

‘We should see some growth already in Q1, but I expect growth to be stronger in the second half of the year,’ said the chief executive. ‘We still have a lot of work to do, but I feel very confident we are on the right track. We will bring Adidas back again.’

The Herzogenaurach-headquartered firm’s full year operating profit of €268 million was almost €1 billion better than initially expected and Adidas is guiding for 2024 operating profit of ‘around €500 million’, almost double last year’s haul but below analysts’ estimates.

The company behind the classic Samba sneaker and famous Predator football boot is now guiding for single-digit growth in 2024 for the underlying business, excluding any Yeezy sales.

THE ANALYST’S TAKE

Quilter Cheviot analyst Mamta Valeccha commented: ‘For Adidas and the sportswear industry in general, performance will be back half-weighted, with the first half still being impacted by initiatives to bring down elevated inventories, particularly in North America.

‘As a result, order books by retailers are still weak for the first half of the year as they are being quite cautious. However, demand is expected to pick-up from on the back of the Olympics and Euros this summer.’

Valeccha added: ‘Adidas plans to return to top-line growth by scaling its successful franchises such as Sambas and Gazelles, but also introducing new ones and leveraging more of its product range. This will also include a drive to improve retailer relationship and create more impactful marketing initiatives. By region, all are guided to see positive sales growth but North America as the group makes efforts to reduce inventory into the wholesale market in the first half.’

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Issue Date: 13 Mar 2024