- Wednesday, October 16, 2024
Adidas has reported its third-quarter earnings, revealing a boost in sales from its remaining Yeezy merchandise. However, despite beating revenue projections and raising its full-year guidance for the second consecutive quarter, Wall Street remains cautious about the company's performance in 2024.
Analyst Cristina Fernández from Telsey Advisory Group has maintained a Market Perform rating on Adidas' stock and set a price target of €185 for its Germany-listed shares. While she expects the company to surpass its guidance for 2023, she believes that Adidas may adopt a more conservative approach in 2024, potentially disappointing investors.
Tom Nikic from Wedbush also remains cautious following Adidas' update. He points out several challenges facing the company in the coming year, including increased competition in the athleticwear market and a slowdown in consumer demand in the short term. Nevertheless, he finds it somewhat surprising that Adidas is performing relatively well given these challenges. Nikic has given the stock a Neutral rating and set a price target of €176.
Adidas' U.S. listed shares were down 1.9% to $92.85 as of Wednesday morning, while the S&P 500 declined by 0.7%. However, despite this dip, Adidas' shares have experienced significant growth this year, rising nearly 40%. Meanwhile, Adidas' German-listed shares closed 0.2% lower at €176.82.
In its third-quarter update, Adidas reported a 6% decline in revenue compared to the previous year, amounting to €5.999 billion ($6.33 billion). However, this figure slightly exceeded analysts' estimates of €5.9 billion ($6.23 billion). When adjusted for currency fluctuations, revenue increased by 1% compared to the same quarter last year, according to the company.
Adidas Expects Operating Loss to Improve
Adidas, the renowned sportswear company, has revised its full-year forecast, demonstrating optimism despite the ongoing challenges in the retail industry. The company now predicts a full-year operating loss of approximately €100 million, a significant improvement from the previously projected loss of €450 million. Furthermore, Adidas expects a low-single-digit decline in currency-neutral revenue, surpassing earlier estimates of a mid-single-digit decrease.
One of the contributing factors to this positive outlook is the successful sell-off of inventory from Adidas' Yeezy collection. The partnership with rapper Ye, formerly known as Kanye West, played a significant role in the company's success until their association was terminated due to controversial social media posts. However, Adidas has managed to leverage the residual demand for the Yeezy line, resulting in a boost in revenues.
Initially, Adidas anticipated substantial losses amounting to €700 million in 2023 due to inventory write-offs and other related costs linked to the dissolution of the Yeezy partnership. However, thanks to the decision to sell the remaining Yeezy shoes, the estimated inventory write-off is now projected to be around €300 million - a significant decrease from the previous forecast of €400 million. Meanwhile, there will still be a one-off cost of €200 million.
While the sale of Yeezy inventory has undoubtedly supported the company's performance this quarter, Adidas attributes its overall success to the strong development of its core business. The brand has exceeded expectations, reinforcing an optimistic outlook for the future.
Financial experts anticipate that Adidas' turnaround is just beginning, with potential fruits to be borne in the near future. Citi's Thomas Chauvet predicts that 2023 will be a year of transition under the leadership of CEO Bjorn Gulden. He highlights Gulden's efforts in restructuring the organization, reducing excess inventories, and rebuilding the brand's credibility as crucial steps towards future success.
Chauvet's analysis leads him to believe that Adidas has the potential to catch up and thrive in the coming years under the strategic guidance of CEO Bjorn Gulden. Consequently, he maintains a Buy rating and sets a price target of €219.
Overall, Adidas' revised forecast signals a positive trajectory for the company, showcasing its resilience and determination in the face of challenges. As the brand continues to adapt and evolve under new leadership, industry experts are eagerly awaiting its continued progress.
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