Market rally – Adidas shares jump 8% on brightened outlook

In a surprising turn of events, Adidas witnessed an 8.2% surge in its shares on Wednesday, propelled by the company’s unforeseen elevation of its full-year guidance coupled with a notable year-on-year profit surge during the initial quarter. The German sportswear giant announced a revision in its full-year revenue and operating profit outlook following the robust performance, expecting currency-neutral revenues to ascend at a mid-to-high-single-digit rate for the entirety of 2024, a notable uptick from the previous mid-single-digit growth projection.

Market rally - Adidas shares jump 8% on brightened outlook

Adidas anticipates its operating profit for the year to hover around 700 million euros ($745 million), marking a substantial increase from the prior estimate of approximately 500 million euros. The momentum follows a strategic move by Adidas to divest its struggling Yeezy inventory post its separation from rapper Ye, formerly Kanye West. Forecasts indicate an anticipated additional revenue influx of roughly 200 million euros from the residual Yeezy inventory sales throughout the remainder of the year.

Preliminary figures unveil a remarkable surge in first-quarter operating profit, skyrocketing to 336 million euros from a mere 60 million euros during the corresponding period last year, underscoring the company’s robust performance trajectory. However, Adidas cautioned investors regarding the adverse impact of unfavorable currency fluctuations on its profitability for the ongoing fiscal year, which is expected to substantially influence reported revenues and gross margin development, as outlined in its latest report.

Adidas navigated through a transitional phase in 2023, grappling with the revenue loss stemming from the Yeezy sales fallout. CEO Bjørn Gulden expressed optimism regarding the company’s growth trajectory, foreseeing a gradual uptick in the second half of the year following a modest first-quarter expansion. Market analysts, including those from UBS, have lauded Adidas’s underlying sales growth attributed to Yeezy products, viewing it as a testament to the brand’s burgeoning momentum. The revised guidance and sustained optimism surrounding sales growth throughout the year position Adidas favorably as one of the top-performing entities in the industry.

Furthermore, Adidas aims to leverage partnerships with key events such as the OlympicsParalympicsEURO 24, and Copa, seeking to capitalize on the anticipated sports fervor this year. Consumer discretionary analyst Mamta Valechha, from Quilter Cheviot, highlighted the potential momentum boost driven by Adidas’s Terrace footwear brand across various franchises. Anticipating a vibrant summer sporting calendar, Valechha emphasized the brand’s increased appeal among retailers, indicating a potential uptick in demand amid cleaner inventories.