(News Bulletin 247) – The sports equipment manufacturer published preliminary results for its third quarter which turned out to be better than expectations. It also raised its outlook for 2023. Its action is taking off in Frankfurt.

Adidas is recovering from a true annus horribilis. Last year, the German sports equipment manufacturer saw its stock price halved, weighed down by fears about inflation, high stocks (as with its rivals Nike and Puma) and the departure of its general director. .

Above all, the German group suffered from its breakup with Kanye West following the singer’s anti-Semitic remarks. A collaboration which was far from trivial, as can sometimes be the case with other stars, because from this association was born the Yeezy brand, whose sales (although not communicated by the company) proved to be colossal for the group. Deutsche Bank valued them at around 1.7 billion euros (around 8% of turnover) per year for a contribution to the company’s operating profit of 750 million euros.

But the new boss of Adidas, the Norwegian Bjørn Gulden, a former top athlete in both football and handball and above all a defector from the little brother and rival Puma, seems to be putting the group back on the right track.

The company’s share price has recovered 40% since the start of the year, and the stock gained another 4.1% this Wednesday on the Frankfurt Stock Exchange as the company delivered preliminary figures for the title. of its third quarter better than expectations.

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Between Samba and Gazelle

Its revenues fell by 6% over one year to 6 billion euros. But, excluding currency effects, sales increased by 1%, while Deutsche Bank and UBS expected a stable figure. Operating profit stood at 409 million euros, reflecting a margin of 6.8% compared to 8.8% over the same period of 2022.

“While the company’s performance in the quarter was again positively impacted by the sale of some of its remaining Yeezy inventory, Adidas’ underlying business also grew better than expected,” a declared the German group.

In a note entitled “Dance the Samba”, in reference to one of the company’s shoe models, Bank of America points out that by reprocessing Yeezy stocks, Adidas’s growth is even rose to 2%, while the operating result turned out to be twice as high as expected.

“Adidas beat forecasts on its revenue, gross margin and operating profit, and this is not linked to Yeezy but rather to the underlying performance of the Adidas brand,” Stifel said.

The company did not detail in its press release the reasons explaining the good performance of its activity excluding Yeezy. But Bank of America notes in its note of the day “that an excitement of the Adidas brand is being generated by the Samba and Gazelle products” or Campus, flagship shoe models of the brand with the three stripes.

The American bank based itself on the trends in the Google search engine (Google trends search) which have recently taken off for these products to the point of reaching unprecedented levels. The establishment believes that this gives the company room to sell its products quickly (and therefore avoid costs linked to storage or promotions) or to establish collaborations with fashion players.

Gulden changed everything

In a recent note, HSBC highlighted the feats achieved by Bjørn Gulden since his arrival at the head of the company at the end of 2022. “The most important thing in our eyes is the cultural change currently taking place at Adidas (thanks to to him, Editor’s note) because the manager empowers people and encourages staff to take decisions/risks”, the bank explained.

“He has also implemented many changes very quickly. His philosophy is to focus more on product than process, as well as execution. On the product side, it appears that management has already put hand in the dough with the revival of the emblematic Samba, Gazelle, etc.”, also explained HSBC.

To return to today’s announcement, Adidas has, following this good third quarter, raised its forecasts for its 2023 financial year. The group anticipates a drop in its sales of a “low-single digit” percentage (i.e. i.e. between -1% and -4%) against “mid-single digit” (-5%) previously. The underlying operating profit excluding the impact of the sale of Yeezy stocks is expected at 100 million euros, compared to “balance” previously. And including various extraordinary costs, the company expects an operational loss of 100 million euros compared to 450 million euros previously.

This is good, but analysts believe that these prospects nevertheless remain cautious. Stifel therefore considers that they could be raised again before the publication of the annual results.

Towards a recovery in profitability

The company’s announcement nevertheless sends an encouraging signal. “This reinforces our positive opinion of a company which is still at the beginning of its recovery,” says Deutsche Bank.

“Adidas’ equity story still has a long way to go,” notes Bank of America. But the American establishment is expecting several catalysts for the stock such as the launch of new products and the organization of a day dedicated to investors next year.

“We believe Adidas should start 2024 on a healthier footing, with management’s priority being to strengthen the brand’s image and regain market share – with margin expansion being a consequence of the “improvement in turnover rather than a short-term objective in itself”, HSBC dissects for its part. The Sino-British bank still sees Adidas generating an operating margin of around 10% in 2025 or 2026.

These good results for Adidas also confirm the sector’s renewed form after Nike already announced excellent quarterly figures two weeks ago, above all marking a reassuring drop in stocks for the market.