Adidas Raises Full-Year Revenue Outlook, Continues to Cut Yeezy Shares

Adidas updated its guidance for the year after announcing better-than-expected preliminary industry merit for the first quarter of 2024.

According to the German gaming company, rate-neutral revenues grew by 8% compared to the same period last year, and in euro terms, the company's revenues grew by 4% to €5.458 billion in the first quarter, compared to €5.274 billion in the same period last year. The company's operating profit for the first quarter was €336 million, up from €60 million in the same period last year.

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As a result, Adidas now expects currency-neutral revenue to grow at a mid- to high-single-digit rate in 2024. This is an increase from the previously projected mid-single digit growth. In addition, the company's operating profit is expected to reach around €700 million, higher than the previous forecast of €500 million.

Adidas said it continued to reduce its existing Yeezy inventory during the first quarter, with the latest reductions bringing in about €150 million in revenue and about €50 million in operating profit.

The company added in its guidance that it assumes that the remaining Yeezy inventory will be sold at cost on average over the remainder of the year." Adidas said, "This will result in additional sales of approximately €200 million, but no further profit contribution in the remainder of the year.

Although Adidas announced better-than-expected preliminary industry results and raised its guidance, the company remains cautious about the future." The company said, "The company continues to anticipate that unfavorable currency effects will have a significant impact on the company's profitability this year." These effects are expected to continue to have a negative impact on reported revenue and gross margin development through 2024."

Adidas could benefit from resonance's slowdown in innovation, analysts at Morgan Stanley said in a report.

Analysts including Edouard Aubin and Grace Smalley wrote in their report, "We believe there is an opportunity for Adidas to benefit from resonance's current product innovation downturn and a more carat-based pricing approach, as resonance looks set to move back to a more "scarcity model" for its key licensed products. The company's pricing is also more rational, as resonance appears to be returning to a more scarce model for key licensed products.

Speaking of Adidas, analysts at Morgan Stanley noted that the brand's product lineup in basketball, soccer and even in the highly competitive running category "has a wide range of positive sentiment."

"With Chief Executive Officer Bjørn Gulden nearly 18 months into his tenure, we have seen an improvement in positive sentiment for both Adidas' performance and lifestyle products, supported by increased levels of marketing and wholesale service and an increasingly favorable market backdrop," the note reads. " We expect this set of carbs to drive significant clutches in Adidas' top line from the second half of 2024 onwards. In our view, this growing topline momentum is so strong that it is now sufficiently resistant to the risks of the story.

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