Pro Content

Adidas Increases Its Full-year Guidance Following Better Than Expected Second Quarter Results

adidas has announced preliminary results for the second quarter of 2024. In Q2, currency-neutral revenues increased 11% versus the prior year. In euro terms, the company’s revenues grew 9% to € 5.822 billion (2023: € 5.343 billion). Excluding Yeezy sales in both years, currency-neutral revenues increased 16% during the quarter.

The company’s gross margin reached 50.8% in Q2 (2023: 50.9%). The underlying adidas gross margin improved strongly, reflecting better sell-throughs, reduced discounting, lower sourcing costs and a more favorable category mix. The significantly smaller Yeezy business had a negative impact on the year-over-year comparison. The company’s second quarter operating profit increased to € 346 million (2023: € 176 million), including a contribution of around € 50 million from the sale of parts of the remaining Yeezy inventory.

Following the better-than-expected performance during the quarter and considering the current momentum, the company has increased its full-year guidance. adidas now expects currency-neutral revenues to increase at a high-single-digit rate in 2024 (previously: increase at a mid- to high-single-digit rate). The company’s operating profit is now expected to reach a level of around € 1.0 billion (previously: to reach a level of around € 700 million).

Within its guidance, the company assumes the sale of the remaining Yeezy inventory during the remainder of the year to occur on average at cost. This would result in additional sales of around € 150 million and no further profit contribution during the remainder of the year.

The company continues to expect unfavorable currency effects to weigh significantly on the company’s profitability this year. These effects are negatively impacting both reported revenues and the gross margin development in 2024. This was particularly the case during the first half of the year.

Adidas Group CEO Bjørn Gulden reported that the second quarter was another that confirmed the company’s improvement and progress toward becoming healthy again.

“The consumers are reacting positively to both our marketing and to our product launches,” said Gulden in the company’s second-quarter financial release. “We see improved sentiment for the Adidas brand globally and we continue to see improved sell-out numbers both for lifestyle and performance products. New in the quarter was to see a positive development also for apparel.”

Gulden noted that consumers and retailers continue showing strong and increased interest in the Adidas brand and products. He said this was “clearly reflected” in the 16 percent growth for the underlying Adidas business, excluding Yeezy, in the quarter and growth across all channels and markets.

In euro terms, total revenues grew 9 percent to €5.82 billion in the second quarter, compared to €5.34 billion in the year-ago Q2 period, as currency developments led to an unfavorable translation impact.

Currency-neutral revenues, including Yeezy, increased 11 percent compared to the prior-year quarter. The double-digit growth reflected the strong momentum of the underlying Adidas business. The sale of parts of the remaining Yeezy inventory generated revenues of around €200 million in the quarter, which was significantly below the €400 million in Yeezy sales generated in the prior-year Q2 period

Channel Highlights
The underlying top-line momentum, from a Channel perspective, reportedly broadened during the second quarter.

Wholesale grew 17 percent on a currency-neutral basis to €3.42 billion in the second quarter.
Direct-to-consumer (DTC) revenues grew 4 percent (c-n) to €2.39 billion. Excluding Yeezy, the company’s DTC business grew 21 percent.
Growth in Adidas’ owned retail stores further accelerated (+15 percent c-n) driven by strong sell-through in the company’s concept stores.
E‑commerce revenues declined 6 percent in the quarter in currency-neutral terms because of the significantly smaller Yeezy business. Excluding Yeezy, revenues in e-commerce were up more than 30 percent in Q2.

Category Review
Footwear continued to lead top-line growth with a strong product offering. Revenues reportedly increased 17 percent on a currency-neutral basis during the quarter and grew 15 percent in reported terms to €3.57 billion. The company said the “strong product offering” in Originals and Football (Soccer) translated into strong double-digit growth in those categories. In addition, increases in Running, Training, Performance Basketball, and Sportswear also reportedly contributed to the company’s top-line increase in footwear.

Apparel sales were up 6 percent on a currency-neutral in Q2, driven by strong double-digit growth in Football (Soccer), helped by major events during the period. Jersey sales related to the UEFA EURO 2024 and the Conmebol Copa América drove the increase as Adidas teams Spain and Argentina won their tournaments. The company reported that in other categories, the improvement in momentum in apparel continued to be offset by a relatively conservative sell-in approach, particularly in North America.

In reported euro terms, Apparel sales grew 3 percent to €1.89 billion.

“The Euro and the Copa were great football events with great atmospheres and with huge interest from the fans,” Gulden commented. “I was very happy to see how Adidas showed up as a brand and, of course, extremely proud to see Argentina winning the Copa and Spain winning the Euro. It was also great to see how these big sporting events bring athletes, fans and people together in a very positive way. We now look forward to see this continue with great Olympics in Paris. The start has been sensational.”

Accessories declined 8 percent currency-neutral during the quarter, reflecting a 9 percent decrease in euro terms to €370 million, tempered a bit by currency fluctuations.

Segment Review
Lifestyle revenues increased by double-digits during the quarter. The company continued to drive newness and depth across its popular Samba, Gazelle, Spezial, and Campus products. In addition, Adidas also experienced increasing demand for Retro Running. By launching further franchises in Sportswear, the company started to serve consumer needs across a broader range of price points. Collaborations with partners such as JJJJound, Edison Chen, Wales Bonner, and Bad Bunny (a.k.a. Xochitl Gomez) continued to fuel demand for the company’s overall Lifestyle offering.

Performance also posted double-digit growth, led by Football (Soccer). In addition to successful jersey sales, the company recorded a “strong uptake” of its footwear franchises. The latest iterations of Predator and Copa and the newly launched F50 franchise were said to benefit “strongly” from on-pitch visibility during the two major football events.

Growth also accelerated in other major Performance categories. In the running category, Adidas continued to benefit from strong demand for its Adizero family and started to tap into the broader market with its new Supernova and Adistar franchises. In addition, the successful launch of the Dropset 3 drove growth in Training. In Performance Basketball, Anthony Edwards’ AE 1, the Harden Vol. 8, and Donovan Mitchell’s D.O.N. Issue 6 experienced strong sell-throughs and drove brand awareness.

Regional Revenue Highlights
Adidas reported strong double-digit growth in Europe, Emerging Markets and Latin America in the second quarter.

In Europe, currency-neutral sales increased 19 percent during the quarter and increased 20 percent in reported euro terms to €1.91 billion in the period.
North America revenues decreased 8 percent in currency-neutral terms and declined 7 percent in reported euro terms to €1.03 billion in the period. The decline was said to be “solely related” to the significantly smaller Yeezy business. Excluding Yeezy, revenues in North America increased versus the prior year, which was driven by wholesale and owned retail growth.
Greater China revenues increased 9 percent in currency-neutral terms in Q2, reflecting a 7 percent increase in reported euro terms to €822 million and an upside from currency translation.
Emerging Markets revenues increased 25 percent in currency-neutral terms in Q2, posting reported growth of 25 percent in euro terms to €747 million.
Latin America also grew 33 percent currency-neutral but just 13 percent in reported euro terms to €673 million.
Japan/South Korea revenues were up 6 percent in currency-neutral terms. In reported euro terms, sales declined to €321 million.

Income Statement Highlights
The company’s second-quarter gross margin reached 50.8 percent of net sales, a ten basis point decline year-over-year from 50.9 percent in Q2 2023. The significantly smaller Yeezy business reportedly hurt the year-over-year comparison. Excluding Yeezy, Adidas’ gross margin increased approximately 1.5 percentage points to around 50.5 percent during the quarter, compared to roughly 49.0 percent in Q2 2023, despite adverse currency effects still weighing strongly on the growth. The improvement reflected “better sell-throughs, lower freight and product costs, reduced discounting, and a more favorable product mix.”

Other operating expenses increased by 2 percent to €2.64 billion in the quarter. As a percentage of sales, they decreased 3.0 percentage points year-over-year to 45.3 percent of net sales.

Marketing and point-of-sales expenses were up 15 percent to €707 million in the quarter (2023: €617 million). The increase reflected continued investments in the global brand campaign “You Got This,” large-scale activations surrounding sports events, including Euro 2024 and Copa América, and new product launches. As a percentage of sales, marketing and point-of-sale, expenses were up 0.6 percentage points to 12.1 percent (2023: 11.5 percent).
Operating overhead expenses decreased 2 percent to €1.93 billion (2023: €1.97 billion) despite ongoing investments to strengthen the company’s sales activities. The decline was supported by non-recurring expenses recorded in the prior year period, which related to accruals for donations and strategic measures. As a percentage of sales, operating overhead expenses decreased 3.6 percentage points to 33.2 percent (2023: 36.8 percent).

Operating profit amounted to €346 million, nearly double the €176 million level in the second quarter of 2023, reflecting an operating margin of 5.9 percent (2023: 3.3 percent). The sale of parts of the remaining Yeezy inventory contributed around €50 million to the company’s operating profit in the second quarter. This compares to a profit contribution from Yeezy of around €150 million in the prior-year period.

Net income from continuing operations amounted to €211 million, more than double the €96 million in net income in the year-ago period, while basic EPS from continuing operations increased to €1.09 in Q2 from €0.48 in the year-ago quarter.

“Given the improved business in Q2 we continue to raise our expectations and are now guiding for a full-year revenue increase in the high single digits and an operating profit of around €1.0 billion,” Gulden said.

“The improved brand momentum with our consumer happened faster than we had expected,” he continued. “But that does not mean we do not have a lot of work to do. I am convinced we can bring Adidas back to be a very strong and healthy company. To achieve this we will work hard to continue to grow double digits and use this growth to get leverage on our cost base to improve our profitability. Our mid-term EBIT margin target of 10 percent is achievable despite external challenges.”