Adidas raises profit forecast again
Adidas Generates a Billion-Dollar Profit Again, Three Years After Last Time
Adidas, under the leadership of Björn Gulden, is recovering faster than anticipated and is on track to make a billion-dollar profit again this year. The sports apparel manufacturer raised its annual revenue forecast in the second quarter due to better-than-expected results. The Herzogenaurach DAX-listed company plans to achieve a revenue growth of nearly 10% for the current year. Initially, Adidas had projected a rise in the mid to high single-digit percentage range for this year.
Previously, Adidas had anticipated an operational profit of around 700 million Euros for 2024, but now expects to make around 1 billion Euros. Adidas last made more than a billion dollars in revenue three years ago. This is the second time in three months that Adidas has raised its expectations - the new forecast is double the one Gulden had set for his second year.
Adidas explained the improved outlook: The revenue increased by 11% in constant currency to 5.82 billion Euros, surpassing analysts' expectations. Adidas CEO Gulden himself had only expected double-digit growth rates for the second half of the year. The profit nearly doubled from April to June, reaching nearly 346 million Euros. The unexpected sale of remaining stocks of the "Yeezy" collection of the controversial rapper Kanye West added an additional 50 million Euros in profit.
Focus on Sport Specialty Retail
With six months completed, Adidas has an operational profit of 682 million Euros - almost reaching the previous forecast. Last year, the profit after the first half of the year was around 236 million Euros.
The operating margin was 50.8% in the second quarter - slightly below the previous year's figure. However, the high margin this time is due to lower procurement costs, smaller discounts, and a more favorable product mix, the company explained. Gulden corrected the course set by his predecessor Kasper Rorsted and is focusing more on selling through sport specialty retailers. Negative currency effects could also impact margins in the second half of the year, the company warned.
"Samba" and "Gazelle" Drive Success
Nike, Adidas' main rival, miscalculated with its focus on online sales and shocked the markets with a gloomy outlook in late June. For the fiscal year 2024/25 (as of May end), Nike expects a revenue decline of approximately 5%. Despite major sports events like the European and South American championships in football and the Olympics in Paris, Nike's market share has been affected by the rise of new sports brands like Hoka, Lululemon, and On.
"What Gulden has brought back is the focus on sports," said investment manager Simon Jäger of Flossbach von Storch recently.
Adidas, in particular, can continue to build on the success of its retro models like "Samba" and "Gazelle," which are now popular as casual shoes.
Adidas' recent revenue forecast upgrade to a 10% growth for the year, driven by the success of "Samba" and "Gazelle" models, could potentially translate into a lucrative Prize forecast for shareholders, given the company's history of making over a billion dollars in revenue every three years, as seen in 2019. The economic boost from the surprising sale of remaining stocks of the Yeezy collection, worth 50 million Euros, is a stark reminder of Adidas' strategic partnerships and the resulting financial benefits, demonstrated by the prominence of Adidas stripes in the industry.
