(News Bulletin 247) – The sports equipment manufacturer published preliminary results for its first quarter which turned out to be better than expectations. Building on this dynamic start to the year, Adidas also raised its outlook for 2024. On the Frankfurt Stock Exchange, the stock returned to the levels it had two years previously.

For several quarters, Adidas has been engaging in a new financial communication practice, publishing preliminary results. The German group’s last early delivery of October 2023 had already been appreciated by the market and had resulted in more than laudatory comments from analysts.

“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”, HBSC had ruled.

The Sino-British bank had a hollow nose since Adidas’ preliminary first quarter publication turned out to be better than expected.

Over the first three months of the year, Adidas’ revenues increased by 4% year-on-year to reach 5.5 billion euros. Excluding currency effects, growth is 8%, which is twice the consensus cited by Oddo BHF (4%) which for its part expected a 5% increase in sales, excluding currency effects.

This is a “good performance” for the financial intermediary “taking into account Nike’s cautious comments on its prospects” especially since (Adidas’ German rival, Editor’s note) Puma should record a drop of 1 % of its turnover in the first quarter.

Winning bet

The brand with the three stripes took the gamble of bringing its emblematic models from the 70s such as the Samba, or the Campus, up to date, which has paid off.

“Growth was driven by lifestyle, supported by fast-growing shoe franchises (Samba, Campus, etc.),” analyzes Stifel, which specifies that Adidas has not detailed the breakdown of its sales by region.

A little further down in the accounts, Adidas announces a very strong increase in operating income. It stood at 336 million euros in the first quarter of 2024, compared to 60 million euros a year earlier.

Here too, the sports equipment manufacturer explodes analysts’ expectations. Oddo BHF expected Adidas to report an operating profit of 169 million euros, while Deutsche Bank was less ambitious and expected an operating profit of 136 million euros.

Adidas also says it has sold 150 million euros of Yeezy products – a brand that the group no longer wishes to exploit following the end of its collaboration with the controversial singer Kanye West – over the first three months of the year, for a contribution of approximately 50 million euros to operating income.

“Due to the better-than-expected performance recorded during the quarter, the company has revised its guidance upwards for the full year,” Adidas explained.

Building on a very good start to the year, the group has raised its forecasts for its 2024 financial year. The equipment manufacturer is now counting on growth in its sales of around 5% to 10% at constant exchange rates compared to only 5 % previously.

Operating profit is expected to be around 700 million euros for the year 2024, instead of the 500 million euros announced last March.

“This time, the increase in forecasts for the 2024 financial year does not have much to do with the Yeezy mechanics, but rather with the development of the Adidas brand which is operating at full speed”, appreciates for his part Stifel.

In its forecast, the company assumes that the sale of Yeezy inventory will generate €200 million in additional revenue but will make “no additional profit contribution during the remainder of the year.”

On the Frankfurt Stock Exchange, Adidas rose 8.1% this Wednesday afternoon, after the publication of these preliminary results, which were higher than expectations, and this increase in outlook for the entire 2024 financial year. the levels that were his two years previously.

But analysts believe that the objectives revealed today by Adidas are still too cautious. “The market clearly does not believe the operating profit target, which seems unrealistic and too conservative to us,” says Royal Bank of Canada.

A group back on its feet

Since the end of 2022, Bjørn Gulden, a former high-level athlete in both football and handball and above all a defector from little brother and rival Puma, has been leading Adidas’ return to better fortune.

The pressure is such that the Adidas pilot prefers to announce very cautious forecasts and thus clean up the accounts in order to then be able to offer pleasant surprises to the market.

A stylistic exercise that has not always been understood by investors. On the sidelines of the publication of its annual accounts last month, the group suffered the ire of the market after announcing an operating profit target for 2024 lower than analysts’ consensus.

UBS analysts then recommended investors to exercise discernment, recalling that the group’s managing director, Bjorn Gulden, is known for announcing very cautious objectives. The group had in fact declared that it anticipated an operational loss of 750 million euros for 2023 and ultimately produced an operating profit of 268 million last year.

The German group is therefore starting to gradually get back on its feet. And above all wants to turn the page on an annus horribilis 2022. Adidas had to give up significant revenue by ending its collaboration with Kanye West following the singer’s anti-Semitic comments.

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.

The German sports equipment manufacturer then saw its stock price halved in 2022, weighed down by fears about inflation, high stocks (as for its rivals Nike and Puma) and the departure of its previous general manager. .