Adidas shoes are displayed at a DSW store on January 31, 2024 in Novato, California.
Justin Sullivan | Getty Images
Shares of Adidas jumped 8.2% on Wednesday after the company unexpectedly raised its full-year guidance and reported a year-on-year profit increase in the first quarter.
The German sportswear company said that it now expects currency-neutral revenues to increase at a mid-to high-single-digit rate in full-year 2024, compared with a previous projection of growth near a mid-single-digit rate.
Operating profit for the year is now expected to reach around 700 million euros ($745 million), Adidas said in its unscheduled trading update published late on Thursday. It had previously forecast operating profit near 500 million euros.
Adidas has been selling off its loss-making Yeezy inventory since breaking ties with Ye, the rapper formerly known as Kanye West. The firm said it now expects the sale of the rest of the Yeezy inventory during the remainder of the year to result in additional sales of around 200 million euros.
The company also said its first-quarter operating profit rose to 336 million euros, up from 60 million in the same period of last year, according to preliminary figures.
Unfavorable currency effects are expected to weigh “significantly” on Adidas’ profitability this year and impact both reported revenues and gross margin development, the firm said in its report.
Adidas underwent a transition year in 2023 after it lost revenue from the Yeezy sales. Back in March, CEO Bjørn Gulden said that he expected some growth in the first quarter, which will strengthen in the second half of this year.
The underlying sales growth from the Yeezy products confirms the “rapidly accelerating momentum” of the Adidas brand, according to UBS analysts. The guidance and continued expectation of better sales growth throughout the year will be taken well by the market, making Adidas one of the “best earnings momentum stories in the space,” the analysts said.
The sportswear company is also seeking a boost from its partnerships with the Olympics, Paralympics, EURO 24 and Copa events this year.
Mamta Valechha, consumer discretionary analyst at Quilter Cheviot, flagged that the company’s Terrace footwear brand should drive momentum in other franchises.
“With a packed summer sporting calendar, the group is investing in performance shoes (running and basketball), and as inventories are cleaner, we suspect retailers would want more of adidas on their shelves, as evidently the brand is picking up,” said Valechha.