Company Reports

Narrow-moat Adidas’ final first-quarter 3.5% sales growth, 51.2% gross margin, and 6.2% operating margin matched the preliminary results that were released on April 16. The firm also held to the full-year guidance that it issued on that date of mid- to high-single-digit currency-neutral sales growth and EUR 700 million in operating profit. While the sales outlook appears reasonable, the profit guidance is very low as it implies an operating margin in the low single digits for the rest of the year. It is true that economic conditions are not ideal, but we think that Adidas is being overly conservative on the near-term outlook considering the popularity of its Terrace styles like Samba and Gazelle and with major sporting events (like the Summer Olympics) and product launches on the horizon. Also, the firm’s guidance assumes that the remaining EUR 200 million in Yeezy inventory is sold at cost even after EUR 150 million in first-quarter sales of the discontinued line yielded EUR 50 million in profit. Thus, we forecast Adidas’ 2024 operating profit at well above company guidance at close to $1 billion (4.3% margin).

We think Adidas is a leader in athletic and athleisure apparel with a narrow moat based on an intangible brand asset. While it has been beset with problems over the past few years, we think it can still make progress under its Own the Game plan for 2021-25. For example, Adidas' e-commerce, now available in about 67 countries, generated about EUR 4 billion in sales in 2023 (roughly 19% of its total sales), and we project this will exceed EUR 9 billion and 30% of its yearly sales by the end of this decade. Further, we think the firm’s new sportswear offerings and plans to improve its position in key categories like running and outdoor will be successful. However, because of heavy competition, the termination of the Yeezy partnership, and its slow recovery in China, our estimates are below the low end of Own the Game targets of compound average sales growth of 8%-10%, average net income growth of 16%-18%, and 2025 gross and operating margins of 53%-55% and 12%-14%, respectively.

Overcoming uneven demand for sportswear in major markets, narrow-moat Adidas released preliminary first-quarter results that exceeded our expectations. The firm achieved 4% sales growth, a 51.2% gross margin, and EUR 336 million in operating profit in the period, above our respective estimates of 2%, 46%, and EUR 110 million. After revising our model to incorporate these results, our first-quarter earnings per share estimate increases to EUR 1.23 from EUR 0.27 and our fair value estimate rises to EUR 166/$89 from EUR 163/$88. We expect to revisit our forecast for the year after the full quarterly results are reported, expected at the end of April. Adidas did caution that it still expects a significant negative impact from currency movement in 2024.

We think Adidas is a leader in athletic and athleisure apparel with a narrow moat based on an intangible brand asset. While it has been beset with problems over the past few years, we think it can still make progress under its Own the Game plan for 2021-25. For example, Adidas' e-commerce, now available in about 67 countries, generated about EUR 4 billion in sales in 2023 (roughly 19% of its total sales), and we project this will exceed EUR 9 billion and 30% of its yearly sales by the end of this decade. Further, we think the firm’s new sportswear offerings and plans to improve its position in key categories like running and outdoor will be successful. However, because of heavy competition, the termination of the Yeezy partnership, and its slow recovery in China, our estimates are below the low end of Own the Game targets of compound average sales growth of 8%-10%, average net income growth of 16%-18%, and 2025 gross and operating margins of 53%-55% and 12%-14%, respectively.

We think Adidas is a leader in athletic and “athleisure” apparel with a narrow moat rating based on an intangible brand asset. While it has been beset with problems over the past few years, we think it can still make progress under its five-year Own the Game plan (covers 2021-25). For example, its e-commerce, now available in about 67 countries, generated about EUR 4 billion in sales in 2023 (roughly 19% of its total), and we project it will exceed EUR 9 billion and 30% of its yearly sales by the end of this decade. Further, we think the firm’s new sportswear offerings and plans to improve its position in key categories like running and outdoor will be successful. However, because of heavy competition, the termination of the Yeezy partnership, and its slow recovery in China, our estimates are below the low end of Adidas’ Own the Game targets of compound average sales growth of 8%-10%, average net income growth of 16%-18%, and 2025 gross and operating margins of 53%-55% and 12%-14%, respectively.

Narrow-moat Adidas’ 2023 fourth-quarter results and initial 2024 outlook were mostly unchanged from its preliminary results of Feb. 1 (see our note). The firm expects a challenging 2024 due to a suboptimal economy, unfavorable currency movement, and soft demand for sportswear, especially in North America. As we lowered our forecast after the announcement, we do not expect to make any material changes to our EUR 163/$88 per share fair value estimates; we think shares are overvalued. We think CEO Bjorn Gulden is making progress on product innovation, marketing, and other key initiatives, but we also think that financial performance is unlikely to improve materially until 2025.

Ahead of its full report on March 13, narrow-moat Adidas revealed preliminary 2023 results and initial 2024 guidance below our estimates. While disappointing, the outlook was not surprising given similarly dim reports from peers wide-moat Nike and no-moat Puma. Adidas, like others in its industry, is struggling with excess inventory amid slowing demand for activewear in North America, as well as very unfavorable currency movements. Given that its turnaround continues to be a work in progress, we are lowering our fair value estimates to EUR 163/$88 from EUR 172/$93, leaving shares fully valued.

We think Adidas is a leader in athletic and “athleisure” apparel with a narrow moat rating based on an intangible brand asset. While it has been beset with problems since the COVID-19 outbreak, we think it can still make progress under its five-year Own the Game plan (covers 2021-25). For example, its e-commerce, now available in nearly 60 countries, generated an estimated EUR 4.9 billion in sales in 2022 (22% of its total), and we project it will exceed EUR 8 billion and 30% of its yearly sales by the end of this decade. Further, we think the firm’s new sportswear offerings and plans to improve its position in key categories like running and outdoor will be successful. However, because of heavy competition, the termination of the Yeezy partnership, and its slow recovery in China, our estimates are below the low end of Adidas’ Own the Game targets of compound average sales growth of 8%-10%, average net income growth of 16%-18%, and 2025 gross and operating margins of 53%-55% and 12%-14%, respectively.

We think Adidas is a leader in athletic and “athleisure” apparel with a narrow moat rating based on an intangible brand asset. While it has been beset with problems since the COVID-19 outbreak, we think it can still make progress under its five-year Own the Game plan (covers 2021-25). For example, its e-commerce, now available in nearly 60 countries, generated an estimated EUR 4.9 billion in sales in 2022 (22% of its total), and we project it will exceed EUR 9 billion and 30% of its yearly sales by the end of this decade. Further, we think the firm’s new sportswear offerings and plans to improve its position in key categories like running and outdoor will be successful. However, because of heavy competition, the termination of the Yeezy partnership, and its slow recovery in China, our estimates are below the low end of Adidas’ Own the Game targets of compound average sales growth of 8%-10%, average net income growth of 16%-18%, and 2025 gross and operating margins of 53%-55% and 12%-14%, respectively.

Adidas’ third-quarter results and outlook matched its announcement on Oct. 17 (see our note). As expected, the firm benefited from the sale of about EUR 350 million of its discontinued Yeezy shoes in the quarter, as well as some improvement in its underlying business trends, including 10% currency-neutral growth in owned retail. We do not expect to make any material revisions to our EUR 172/$90 fair value estimates, leaving shares fully valued. Although it has had some issues, including the Yeezy controversy, difficulty recovering from the pandemic in China, and a CEO change, we believe Adidas’ narrow moat rating based on a brand intangible asset is intact and expect the firm to benefit from the global growth of activewear.

Narrow-moat Adidas released preliminary third-quarter results that imply higher profitability than we had forecast. After incorporating the announcement into our model, we have revised our fair value estimates to EUR 172/$90 from EUR 170/$93. The reduction in our fair value estimate on Adidas’ ADRs is attributable to the roughly 4% deprecation of the euro versus the U.S. dollar since our last update. The firm will release full results on Nov. 8.

We think Adidas is a leader in athletic and “athleisure” apparel with a narrow moat rating based on an intangible brand asset. While it has been beset with problems since the COVID-19 outbreak, we think it can still make progress under its five-year Own the Game plan (covers 2021-25). For example, its e-commerce, now available in nearly 60 countries, generated an estimated EUR 4.9 billion in sales in 2022 (22% of its total), and we project it will exceed EUR 9 billion and 30% of its yearly sales by the end of this decade. Further, we think the firm’s new sportswear offerings and plans to improve its position in key categories like running and outdoor will be successful. However, because of heavy competition, the termination of the Yeezy partnership, and its slow recovery in China, our estimates are below or at the low end of Adidas’ Own the Game targets of compound average sales growth of 8%-10%, average net income growth of 16%-18%, and 2025 gross and operating margins of 53%-55% and 12%-14%, respectively.

We think Adidas is a leader in athletic and “athleisure” apparel with a narrow moat rating based on an intangible brand asset. While it has been beset with problems since the COVID-19 outbreak, we think it can still make progress under its five-year Own the Game plan (covers 2021-25). For example, its e-commerce, now available in nearly 60 countries, generated an estimated EUR 4.9 billion in sales in 2022 (22% of its total), and we project it will exceed EUR 9 billion and 30% of its total sales by the end of this decade. Further, we think the firm’s new sportswear offerings and plans to improve its position in key categories like running and outdoor will be successful. However, because of heavy competition, the termination of the Yeezy partnership, and its slow recovery in China, our estimates are below or at the low end of Adidas’ Own the Game targets of compound average sales growth of 8%-10%, average net income growth of 16%-18%, and 2025 gross and operating margins of 53%-55% and 12%-14%, respectively.

Narrow-moat Adidas' second-quarter results matched its July 24 preannouncement and our revised forecast (see our prior note). Also, the firm maintained its 2023 outlook for a currency-neutral mid-single-digit sales decline and operating loss of about EUR 450 million. However, this guidance excludes the impact of expected Yeezy drops (including one that is already underway), so it is very likely too low. Yeezy generated about EUR 400 million in sales (roughly 7% of total) in the second quarter and could generate a greater amount in the third. We intend to revisit our expectations and our fair value estimates of EUR 167/$92. We view Adidas' shares and ADRs as fully valued.

We think Adidas is a leader in athletic and “athleisure” apparel with a narrow moat rating based on an intangible brand asset. While it has been beset with problems since the COVID-19 outbreak, we think it can still make progress under its five-year Own the Game plan (covers 2021-25). For example, its e-commerce, now available in nearly 60 countries, generated an estimated EUR 4.9 billion in sales in 2022 (22% of its total), and we project it will exceed EUR 9 billion and 30% of its total sales by the end of this decade. Further, we think the firm’s new sportswear offerings and plans to improve its position in key categories like running and outdoor will be successful. However, because of heavy competition, the termination of the Yeezy partnership, and its slow recovery in China, our estimates are below or at the low end of Adidas’ Own the Game targets of compound average sales growth of 8%-10%, average net income growth of 16%-18%, and 2025 gross and operating margins of 53%-55% and 12%-14%, respectively.

Narrow-moat Adidas announced preliminary second-quarter results and lifted its full-year guidance after the sale of some of its remaining Yeezy shoes at the end of May. For the quarter (full results will be announced Aug. 3), the firm expects to report EUR 5.343 billion in sales (5% decline) and a 3.3% operating margin. Our forecast, which excluded Yeezy, was for EUR 5.092 billion in sales (9% decline) and a roughly EUR 200 million operating loss. We attribute about EUR 200 million of the EUR 251 million difference in sales to Yeezy, with the rest due to a small outperformance by the rest of the business.

We think Adidas is a leader in athletic and “athleisure” apparel with a narrow-moat rating based on an intangible brand asset. While it has been beset with problems since the COVID-19 outbreak, we think it can still make progress under its five-year Own the Game plan (covers 2021-25). For example, its e-commerce, now available in nearly 60 countries, generated an estimated EUR 4.9 billion in sales in 2022 (22% of its total), and we project it will exceed EUR 9 billion and 30% of its total sales by the end of this decade. Further, we think the firm’s new sportswear offerings and plans to improve its position in key categories like running and outdoor will be successful. However, because of heavy competition, the termination of the Yeezy partnership, and its slow recovery in China, our estimates are below or at the low end of Adidas’ Own the Game targets of compound average sales growth of 8%-10%, average net income growth of 16%-18%, and 2025 gross and operating margins of 53%-55% and 12%-14%, respectively.

Showing a glimpse of stability after a horrible 2022, narrow-moat Adidas' 2023 first-quarter results slightly outperformed low expectations. However, the firm did not raise guidance for the year, holding to its view that currency-neutral sales will decline at a high-single-digit rate and that its operating loss will be around EUR 700 million (including a EUR 500 million Yeezy write-off). As our estimates are roughly in line with this outlook, we do not expect to make material changes to our fair value estimates of $85/EUR 162 per share. Adidas' shares have traded below our fair value estimates for most of the past year but now trade at slight premiums after moving up by high-single-digit percentages on the earnings report.

We think Adidas is a leader in athletic and “athleisure” apparel with a narrow-moat rating based on an intangible brand asset. While it has been beset with problems since the COVID-19 outbreak, we think it can still make progress under its five-year Own the Game plan. For example, its e-commerce, now available in nearly 60 countries, generated an estimated EUR 4.9 billion in sales in 2022 (22% of its total), and we project it will exceed EUR 10 billion and 35% of its total sales by the end of this decade. Further, we think the firm’s new sportswear offerings and plans to improve its position in key categories like running and outdoor will be successful. However, because of heavy competition, the termination of the Yeezy partnership, and its slow recovery in China, our estimates are below or at the low end of Adidas’ five-year targets of compound average sales growth of 8%-10%, average net income growth of 16%-18%, and 2025 gross and operating margins of 53%-55% and 12%-14%, respectively.

In an extraordinarily tumultuous period for Adidas, new CEO Bjorn Gulden and holdover CFO Harm Ohlmeyer (both of whom are under contract until 2028) presented the final 2022 financial results, discussed the challenges in 2023, and highlighted future opportunities. The 2022 results and outlook for 2023 were consistent with its preannouncement (see our Feb. 9 note) and our recently lowered estimates. Thus, we do not expect material changes in our EUR 162/$86 fair value estimates and believe Adidas’ shares are attractive for investors willing to ride out more strife in 2023. Our confidence stems from the recovery in international athletics and the power of Adidas’ brand, the source of our narrow-moat rating on the firm.