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We hosted investor meetings in London today with Adidas'' SVP IR and Corporate Communications Sebastian Steffen and VP IR Adrian Rott. Some key topics of discussion are summarised below. Q2 results The company remains upbeat and happy with the performance delivered in Q1 and Q2. It emphasised that double-digit adidas brand growth in Q2 was achieved despite annualising the UEFA EURO and Copa America championships. This growth was balanced across regions, categories and product types. Although soccer was flattish due to the comparatives, the Performance category grew by double-digits due to over 20% growth in performance basketball, running and training. Lifestyle''s +13% growth was driven by balanced growth between Originals and Sportswear, demonstrating the successful commercialisation of its brand appeal. Tariffs Last week the company guided to an unmitigated tariff headwind of EUR 200m. As estimated in our weekly note, subsequent tariff announcements have since reduced this impact. The company emphasised that there is an opportunity to adjust the Spring/Summer 2026 ranges, including World Cup products, which will be sold in Q4. The mitigating effect of any such price adjustments would more significantly be felt in 2026. The company noted that there is still room to improve the full-price mix, particularly in the US, which could help offset tariffs. It will carefully consider price adjustments and ensure alignment with suppliers and distributors, reiterating its commitment to being a reliable partner and not cancelling orders. Soccer World Cup 2026 Last week management had said that this event presents a revenue opportunity exceeding EUR 1bn, larger than ever before. This is because, for the first time, soccer is expected to have a broader cultural impact through streetstyle, beyond just soccer fans. This could be a generational opportunity to attract new customers, and the response from wholesale partners has been encouraging. The initial...
adidas AG
De-rating unwarranted, reiterated Outperform Adidas'' Q2 earnings were c.4% ahead of consensus. However, the market was disappointed by slightly lower sales growth due to a weaker June and maintained to guidance due to the cost of US tariffs. We factor in some tariff impact, but our new full year EBIT of EUR 1.98bn remains above management''s reiterated EUR 1.7-1.8bn range. We reiterate our Outperform rating. Q2 replay: the fans wanted more Investors had been disappointed by there being no earnings pre-release, and although EBIT of EUR 546m was c.4% above consensus, constant currency sales growth of 12%, excluding Yeezy, was lower than expected. Management said that sales trends had improved in July and that the wholesale order book was strong, but investors remain concerned about fading sales growth. Outlook: sticking to the gameplan Management reiterated its full year EBIT guidance of EUR 1.7-1.8bn, indicating that it could have raised it by EUR c.200m if not for tariff costs. In our view some of these tariff costs will be mitigated, including by possible Q4 price rises, hence our estimates fall more modestly from EUR 2.04bn to EUR 1.98bn. As well as supports for the second half from improving currencies and the start of World Cup sell-in, there is also the non-repeat of various charges taken last year, supporting our view that there will be strong cost leverage later in the year. We model adidas brand sales +10% in H2 2025 at constant currencies, and note that management''s hope for EUR 1bn World Cup revenues could be a 400bps sales tailwind heading into 2026. Reiterate Outperform Our DCF-driven target price falls from EUR 290 to EUR 265, principally due to lower earnings estimates. The stock trades (at EUR 175) on a 2026 P/E of 15.4x, which is undemanding, and a 2027 P/E of 13.0x which is in line with Puma (-). We reiterate our Outperform rating.
Q2 results: what happened? Adidas'' Q2 earnings are 4% ahead of consensus, with slightly lower topline mostly due to currencies, more than offset by higher gross margins and lower costs. Q2 EBIT of EUR 546m compares with consensus EUR 523m. The focus today is Adidas'' full year 2025 profit guidance, which it maintains at EBIT of EUR 1.7-1.8bn due to up to EUR 200m of unmitigated tariff costs expected in the second half. BNPP Exane View: tariff reality strikes Much of the debate headed into today was whether Adidas would pre-announce Q2 results, and if not whether this signalled a sequential slowdown in sales growth. We think the +12% adidas brand growth (Q1 +17%) needs to be seen in the context of a c.1,100bps tougher comp, of which around 200bps was sales last year of soccer jerseys. The company message is essentially that guidance would have increased materially without tariffs, but this headwind of up to EUR 200m needs to be taken into account. Brand momentum continues to be strong. We would expect the market to be disappointed that Adidas has not defied tariff gravity, and consensus may begin to factor some of this impact in. Likely direction of consensus FY25 adj. EBIT company-complied consensus sits at EUR 2,085m (guidance EUR 1.7-1.8bn). Without tariffs, in our view there is at least EUR 100m of profit upgrade from banking the H1 beat. Management maintains its profit guidance, flagging up to EUR 200m of tariff costs in H2, which suggests that guidance would have been raised materially if not for tariffs. Consensus might begin to factor in some of the reality of tariffs so we would expect consensus to trim. Anticipated market reaction Adidas shares are -17% year to date compared with the DAX40 index +22%. Bulls will likely point to continued brand momentum and upside if tariff risks subside; bears will point to slower adidas brand growth in Q2 (+12%) than in Q1 (+17%) and the need for consensus to begin factoring in the reality of tariffs...
What happened? Adidas IR held a group sell-side ''quarterly logic check'' call ahead of its Q2 results, which it is due to report on 30 July. We highlight that there has been no change to full-year guidance and that the purpose of the event was to provide a re-cap of previously published comments. There was no new commentary on Q2 trends or profitability. BNPP Exane View There was no new commentary from Adidas but we remain confident in the investment case, and the brand''s ability to grow by double-digits, as set out in Why there''s more to play for (12 February) and in previous reports (e.g. Stripes vs Swoosh). We reiterate our Outperform rating. Main topics . Q2 2024 base: Excluding Yeezy from the prior year base, Q2 2024 constant currency sales growth was c.+16%, gross margins were 50.5% and EBIT was around EUR 300m. . Q2 2025e topline: the translation drag from currencies will have a similar dampening effect on the reported top line as Yeezy will. In our view, however, Adidas brand should continue to grow its constant currency sales by double-digits. Topics discussed included: winning back market share in China and the US, where empowered local teams are making progress; good developments in apparel, which has lagged the footwear recovery but where Originals has momentum and sportwear/training product pipeline is encouraging; and the breadth of product offer, with the company discussing a wide range of products beyond the ''terrace'' trend, including low profile, Superstar, and performance and lifestyle running (e.g. evo SL and SL72. Climacool 3D is developing better than expected). . Q2 gross margins: full-price sell-through could be a support to gross margins as it was in Q1. We think currency will be broadly neutral, with negative hedges offset by a positive unhedged portion. There will be some US tariff impact towards the end of the quarter, reflecting products shipped from mid-April. It has not adjusted prices in the US. Further ahead,...
Initiation of coverage With this report we initiate coverage of Adidas ADR, in coordination with our pre-existing coverage of Adidas. We have an Outperform rating on Adidas ADR with a target price of USD165, implying 24.6x 2026 P/E. Our latest published research on Adidas can be found here.
We have adjusted our estimates following Adidas'' Q1 results. Our FY Dec-25 forecasts remain broadly unchanged, adjusting for the Q1 profit beat but also adverse movements in currency. Our EBIT forecast of EUR 2,041m is closely aligned with consensus but above management''s more conservative EUR 1.7-1.8bn guidance. For a recap of the Q1 results, see Q1 results first take and Q1 results off the call We do not consider the changes to be material; our rating is unchanged.
Q1 results: what happened? Adidas reported Q1 results, having pre-announced sales and EBIT headlines last week. There was a c.20% consensus beat in EPS, driven mostly by the already announced 12% EBIT beat, but also lower finance charges. The focus today is Adidas'' full year 2025 guidance, and the company has maintained its guidance for high single-digit constant currency sales growth (double-digit for adidas brand) and EBIT of EUR 1.7-1.8bn. It says: ''in a ''normal world'' with this strong order book and in general a very positive attitude towards adidas, we would have increased our outlook''. However, tariff uncertainty means a wider range of possibilities, including downside risk as well as upside risk. BNPP Exane View: still looks like a relative winner Much of the debate headed into today was how Adidas would guide, given the tariff uncertainties. The outlook is very balanced - in effect, underlying earning power is increasing, and brand momentum is strong, but currently the impact of tariffs is impossible to calculate. This feels like a pragmatic way to guide. We would expect this message to be taken reasonably well and would expect that for now consensus will leave estimates unchanged. Likely direction of consensus FY25 adj. EBIT company-complied consensus sits at EUR 2,070m, already ahead of guidance of EUR 1.7-1.8bn. Banking the Q1 EBIT beat represents EUR 64m for consensus, but consensus is likely to be driven by the guidance today and we would expect it to remain broadly unchanged. Anticipated market reaction Adidas shares are -8% year to date compared with the DAX40 index +12%. Bulls will likely point to strong brand momentum in Q1 and the tone of the statement which suggests that Adidas continues to trade strongly; bears will point to Adidas'' exposure risk to tariffs and consensus not yet baking these in. We would expect the shares to open low-single digit higher this morning. Conference call Presentation and QandA at 3pm CET / 2pm UK....
Q1 pre-release: what happened? Adidas pre-announced Q1 results after market. Q1 constant currency sales growth of +13% (or +17% excluding Yeezy) was ahead of consensus at +12%. The double-digit sales growth across all markets and channels, as well as stronger gross margins, resulted in Q1 EBIT of EUR 610m (consensus EUR 546m). The company did not comment on the outlook or 2025 guidance. BNPP Exane View: 12% operating profit beat, continued brand momentum There has been a lot of debate amongst investors of what comes next after the Terrace footwear trend and whether Adidas can continue its brand heat. The punchline is that Q1 cFX growth of +13% confirms the very strong brand momentum of the underlying adidas brand. Growth of +17%, excluding Yeezy, has barely faded from Q4''s +18%. Management commented: ''Double-digit growth across all markets and channels in today''s volatile environment shows the strength of our brand and underlines the great job our people are doing''. We are not surprised by the lack of outlook commentary: we expect this at next week''s results. Likely direction of consensus: The pre-announcement did not comment on guidance or mention the potential impact from US tariffs. Company-compiled consensus for 2025 EBIT of EUR 2,070m already sits ahead of management''s EUR 1.7-1.8bn guidance, so the EUR 64m first quarter beat is unlikely to move consensus ahead of the Q1 results and conference call on 29 April. See Figure 2 for details. Anticipated market reaction Adidas shares are -11% year-to-date compared with its peer Puma c.-49%. Bulls will point to the 12% Q1 operating profit beat, as well as the continued high-teens growth in the adidas brand; there''s not much in the pre-release for the bears other than the absence of commentary on the 2025 guidance. We expect the results to be taken well. Conference call / next news There is no scheduled conference call today. Adidas will publish its full Q1 results on 29 April. Valuation ...
Tariffs: what happened? In an unexpected move, the United States has changed its tariff policy, announcing a 90 day pause on higher tariffs and instead authorising a universal lowered reciprocal tariff of 10% on most countries, except China. Tariffs on goods from China have been increased to 125%, after Beijing said that it would raise tariffs on US imports to 84%. We update our European Sporting goods tariffs sensitivity analysis, last published here. BNPP Exane View: We show an updated theoretical illustrative summary of the potential impact of the updated tariffs using scenario analysis on both Adidas and Puma. It is important to note that several assumptions are built into the model, and so this does not represent a definitive answer. This time, we assume no tariff mitigation by the companies and, importantly, we assume the companies continue to source from China despite the elevated tariff rate. Our model is available upon request. . Sourcing mix: We create a blended tariff rate based on our estimates of the sourcing exposure by country into the US and calculate that COGS could go up c.2%. We tend to use the global sourcing mix as a proxy but note that China sourcing into the US is only around 3-4% for Adidas and around 10% for Puma. In the new, higher tariffs scenario, the companies could potentially move away from China sourcing completely. We note that companies like Adidas and Puma have already made significant strides in moving sourcing away from China but realise that this could take time. For our estimates on sourcing mix detail, refer to Liberation Day implications for European General Retail . Scenarios: We summarise the scenarios depending on US price hikes: 1) US pricing does not increase, 2) US price increases of 5%, 3) US price increases of 10%. . Top-line and COGS assumptions: In the pricing scenarios, we assume that units fall proportionally to the price increases (revenues unchanged), which is a key variable to...
adidas AG PUMA SE
Tariffs: what happened? In response to Liberation Day tariffs announced last week, in our Weekly Checkout, we published our initial thoughts on the implications on Adidas EPS using scenario analysis. BNPP Exane View: There was a lot of news flow last week, but in case you missed it, below we show a theoretical illustrative example for Adidas and a summary of the potential impact of tariffs using scenario analysis on both Adidas and Puma. It is important to note that several assumptions are built into the model, and so this does not represent a definitive answer. Our model is available upon request. . Sourcing mix: We create a blended tariff rate based on our estimates of the sourcing exposure by country into the US and calculate that US COGS could go up c.4%. We tend to use the global sourcing mix as a proxy but note that China sourcing into the US is only around 3-4% for Adidas and around 10% for Puma. For our estimates on sourcing mix detail, refer to Liberation Day implications for European General Retail. . Scenarios: We create scenarios depending on US price hikes: 1) US pricing does not increase, 2) US price increases of 5%, 3) US price increases of 10% and 4) where pricing would need to go to hold EPS. . Top-line and COGS assumptions: In the pricing scenarios, we assume that units fall proportionally to the price increases (revenues unchanged), which is a key variable to consider. We take the total COGS and multiply that by the US revenues to get to an estimate of US COGS. Within US COGS, we then multiply that by 75% to derive the factory, aka product, COGS. Most companies do not break out factory COGS and so this remains an estimate. We then apply our blended tariff rate. . Efficiency assumptions: We assume that Adidas is able to mitigate some impact of these tariffs, through operating efficiencies, supplier renegotiations and flexible sourcing. The speed and extent to which Adidas could re-route its supply chain is not known, and...
What happened? Adidas IR held a group sell-side ''quarterly logic check'' call ahead of its Q1 results, which it is due to report on 29 April. We highlight that there has been no change to full-year guidance and that the purpose of the event was to provide a re-cap of previously published comments. There was no new commentary on Q1 trends or profitability. BNPP Exane View There was no new commentary from Adidas but we remain confident in the investment case, as set out in Why there''s more to play for (12 February) and more recently in Lacing up for the full year (5 March) and On the road with Adidas (20 March). We reiterate our Outperform. Main topics . Q1 cFX sales growth: Q1 2024 sales growth was c.+5% on a constant currency ex-Yeezy base (+8% including Yeezy). Adidas confirmed positive order books for Q1-Q3 across different markets and categories. It is confident in achieving double-digit growth in North America, high single-digit growth in Europe, and success with its local-for-local strategy in China. Despite consistent performance, Adidas reiterated industry volatility such as traffic and conversion in the US. . Yeezy impact on Q1: Q1 2024 included EUR 150m of Yeezy sales, +3ppts of constant currency sales growth, +70bps contribution to gross margin and EUR 50m of operating profit. On an ex-Yeezy base Q1 2024 constant currency sales growth was c.+5%, gross margin of c.50.5% and operating profit of EUR c.290m. . Q1 gross margins: Adidas remains confident that gross margins can further improve in 2025, albeit more moderately year-on-year than 2024. Drivers are lower product costs and less discounting. However, FX uncertainty remains with around 80% hedged for 2025. . Q1 profit expectations: Adidas reiterated its 2025 guide of EUR 1.7-1.8bn. It has ambitions to grow higher than that but noted that the external environment remains less certain. It expects to maintain operating leverage throughout 2025. It does not expect a major impact from...
We''ve seen these tactics before Having pre-announced Q4 headlines, today''s main news was Adidas'' 2025 EBIT guidance of EUR 1.7-1.8bn. Understandably, the market was initially disappointed, given that consensus sits at EUR 2,065m, but we view guidance as conservative and leave our forecasts broadly unchanged. We highlight the strong start to 2025 signalled by management on the conference call, the healthy cashflow, and we reiterate our Outperform rating. See inside for 15 questions for management. Double-digit across the board in Q4 Adidas had already pre-announced headline sales, margins and operating profits, but regional and channel performance were new details today. Only warehouse disruption in the Japan/South Korea division prevented a clean sweep of double-digit growth in Q4 across all regions, all channels, and all product groups. Most notably, Q4 Footwear constant currency revenue growth was +26%. Outlook: the new 2025 season On the earnings call, management clarified that the 2025 profit guidance was cautious due to uncertainty surrounding tariffs and other external factors, rather than any observed slowdown in the business. In fact, management confirmed that sales have grown by double-digits so far in 2025. The order book is strong, the product pipeline looks healthy, and we see opportunities to take market share in all markets, particularly US and China. Three-peat in 2025 Adidas shares outperformed in 2023 and 2024. We predict another year of outperformance as profitability continues to recover. The stock''s current CY26 P/E multiple of c.20x does not feel too demanding to us. Our forecasts are broadly unchanged (2025 EBIT EUR 2,070m) and we reiterate our Outperform rating and EUR 290 TP.
Make Adidas Great Again Adidas shares have performed strongly since 2023. Now trading on a CY26 P/E of 22x, with consensus and us already fully embracing management''s 2026 margin goal of 10%, can the stock sustain its trajectory? In our view, topline momentum is vital to keep the Adidas story on track. We delve into the opportunities ahead for the brand and conclude that the best may be yet to come. Indeed, 2025 may present a unique opportunity for Adidas to claw back market share from Nike, its dominant rival. We raise our target price to EUR 290 and reiterate our Outperform rating. What''s around the bend Investors are wary of macro headwinds and challenging comparatives from the Terrace footwear trend. However, we identify several opportunities for Adidas to build on its recovery so far. Notably, its North America sales are flat since 2019, despite a growing market. In Greater China, its sales are down by one-third over the same period, while Nike has made gains. Furthermore, Adidas has lost market share in sportwear apparel, despite recent growth. We highlight the opportunity for Adidas to reclaim market share from Nike in 2025, as its rival downsizes its large lifestyle footwear franchises. Eyes on the 2026 prize Adidas targets 10% EBIT margins in 2026. We believe that Adidas can achieve this through double-digit brand sales growth and cost leveraging. Consensus already models 10.2% margins. But with a difficult backdrop of the European consumer sector, we believe that strong topline sales growth and a march towards higher margins will be sufficient for Adidas shares to outperform. Three-peat in 2025 Adidas shares outperformed in 2023 and 2024. We predict another year of outperformance as profitability continues to recover. The stock''s current CY26 P/E multiple of 22x does not feel too demanding to us. We reiterate our Outperform rating and raise our TP to EUR 290 (from EUR 280).
Reassuring outlook message after strong Q4 results Adidas pre-announced its Q4 results after market close, revealing constant currency sales growth of +19% (+18% excluding Yeezy) compared with consensus expectations of +14%. The sales beat, combined with stronger gross margins, resulted in a Q4 EBIT of EUR 57m compared with consensus expectations of a EUR 63m loss. The company''s 2025 outlook commentary is robust, reiterating its ambition to achieve double-digit growth for the Adidas brand and to make progress towards its 10% margin target. We raise our target price to EUR 280 and reiterate our Outperform. Strong Q4 finish, FY EBIT 9% ahead of consensus The Q4 constant currency growth of +19% confirms Adidas'' strong brand momentum, while its gross margin expansion of +520bps demonstrates the company''s ability to navigate a promotional market environment. Notably, the constant currency growth rate is unaffected by the prior year''s Argentina devaluation, and we understand that gross margins were not flattered by provision releases. We estimate that Yeezy only contributed a small profit and that Adidas incurred over EUR 50m of costs as it streamlines its operating cost base. This business is well set up for 2025. No guide for 2025, but reassuring Investors had been nervous about potentially conservative 2025 guidance, which will be published on 5 March, but the tone of the commentary is encouraging: ''We also feel good about the future ... There is a lot of macroeconomic uncertainty right now, but we clearly have the goal to again grow double-digit with the adidas brand''. We expect the results to be taken well by the market tomorrow. Reiterate Outperform We raise our 2024 EPS estimates by 12% to reflect the Q4 beat. We anticipate that consensus will hold off revising 2025 EBIT estimates (currently EUR 2,054m) ahead of guidance in March. We model EUR 2,053m (+1%) and our DCF-derived target price rises to EUR 280 (from EUR 275).
Q3 EPS beats but most attention on the outlook Adidas pre-released Q3 sales and EBIT two weeks ago, and although EPS beat by c.12%, most of the focus was on the outlook commentary. Here management was upbeat: October has traded well, the order book is strong for the next few quarters and the brand''s heat is clearly broadening beyond the Terrace trend. We leave our EBIT forecasts unchanged, while banking the EPS beat, and reiterate our Outperform rating. Q3 highlights Today''s release filled out the detail on the quarter, and although EPS beat due to finance costs and tax, the lagging performance in North America was a particular focus (growth of +1% ex-Yeezy versus +14% global). On the other hand, there was stand-out strength in Europe and in Japan/South Korea - encouraging as this part of Asia led the Terrace trend and is leading Lo Profile. Outlook: double-digit again next year Management''s comments on the earnings call were reassuring, noting that the North America wholesale order book had still been negative in Q3, but is in double-digit growth for H1 25. It is optimistic about the US, with more to go for in the Terrace trend, momentum building in basketball and the potential to scale Superstar next year. It has not yet guided 2025, but it is clearly focused on double-digit sales growth, and the broadening brand momentum - not just Terrace (Samba, Gazelle etc.) but also several Performance sports, Lifestyle apparel and retro running - supports this. Reiterate Outperform We maintain our DCF-derived target price at EUR 260, based on terminal EBIT margins of c.13%. This implies 23.5x 2026 earnings which is a reasonable forward multiple for the stock to trade at in the next 12 months, in our view. We reiterate our Outperform rating.
Q3 results: what happened? Adidas reported Q3 results, having pre-announced the headlines and raised guidance earlier in the month. There''s some detailed geographic and channel mix which shows strong and balanced growth, and EPS is c.12% ahead of consensus due to lower financial charges and taxes. BNPP Exane view: balanced growth, EPS strongly ahead Adidas had already reported Q3 EBIT but there are a few minor surprises this morning. Q3 EPS is c.12% ahead of consensus expectations thanks to lower finance costs and taxes. Bears will probably pick out the sales performance in North America, whereas Europe was stronger than expected. The key for us is that brand heat is strong, broadening across categories and sports, led by footwear but with growth in apparel and both DTC and Wholesale performing strongly. Consensus is likely to bank the EPS beat of EUR 0.26 today, implying a mid-single digit upgrade for 2024, but 2025 consensus earnings are more important and these are unlikely to move. There are no red flags about the external environment in the CEO''s commentary and we think there are hints of double-digit growth in Q4. This might be enough for the shares to trade a little higher first thing, but the main event today is likely to be the earnings call at 3pm CET today which should provide more on the outlook. Likely direction of consensus FY24 adj. EBIT consensus sits at EUR 1.16bn (vs guidance of EUR 1.2bn). We expect consensus EBIT to remain unchanged today but the EPS beat in Q3 should mean that consensus EPS rises mid-single digits. Anticipated market reaction Adidas shares are +16% year to date, in line with the DAX40 index. Bulls will point to brand heat broadening out, with strength across more channels and product categories, particularly seeing growth in apparel; Bears will point that the turnaround in North America is yet to be fully proven. We expect a small positive share price reaction this morning. Conference call Presentation and...
Another beat and raise Last night Adidas pre-released Q3 headline results, confirming continued momentum in the business and raising its full year profit guidance. This new guidance is already reflected in consensus, albeit consensus is likely to rise a little today on the basis that the implied Q4 guidance appears to remain conservative. There are some travel-and-arrive dynamics at play here, but we would expect that management has eyes on the prize in 2025 rather than seeking to maximise Q4 profitability, and we remain confident that the business is well set up for the year ahead. Q3 EBIT EUR 598m - a modest beat against consensus Q3 profits were slightly ahead of consensus (Visible Alpha EUR 584m) and ahead of management''s internal expectations. Excluding Yeezy, constant currency growth was +14% year-on-year despite market worries about inventory shortages. Inside we bridge the profitability excluding the distortion of Yeezy, showing that there was modest operating leverage and another material increase in operating margins. Q4 - we expect double-digit sales growth; a clean exit into 2025 is key Management raised its full year EBIT expectation to EUR c.1.2bn (from EUR c.1bn), roughly where consensus already sits. The raised full year cFX sales guidance of c.+10% could imply a wide range of outcomes for Q4, but we think low-double-digit growth ex-Yeezy is realistic. Brand momentum remains strong (see Figure 2) and exiting the year well set up for 2025 is likely to be management''s main priority. We expect this to be a key topic for the Q3 release on 29 October. Reiterate Outperform We raise our 2024 estimates to reflect the increased guidance. We maintain our DCF-derived target price at EUR 260, based on terminal EBIT margins of c.13%. This implies 23x 2026 earnings. We reiterate our Outperform rating.
Conclusion Adidas IR held a group sell-side ''quarterly logic check'' call ahead of its Q3 results, which it is due to report on 29 October. We highlight that there has been no change to full-year guidance and that the purpose of the event was to provide a re-cap of previously published comments. There was no new commentary on Q3 trends or profitability. Main topics . Q3 cFX sales growth: at its Q2 results Adidas commented that it did not expect a sequential improvement from the +16% ex-Yeezy growth it had achieved in the quarter. At the time it had noted that supply could be a constraint as it had fulfilled some Q2 wholesale demand from its planned Q3 DTC inventory. Consensus (per Visible Alpha) looks for Q3 +10% constant currency growth, but this includes a negative effect from Yeezy. We expect Terrace trend products to be a major driver, alongside soccer. See Figure 1 for details of consensus sales. . Yeezy impact on sales: Adidas began Q3 2024 with EUR c.150m of Yeezy inventory and management''s expectation is that this is sold at cost in the course of the second half. Q3 will have some revenue benefit from Yeezy. However, it laps EUR 350m of sales and EUR 150m of profits from Q3 23. Hence Yeezy is likely to be a year-on-year drag in Q3. On our own assumption of Q3 24 Yeezy revenues of EUR 100m, this implies a c.-500bps drag to sales growth. . Q3 gross margins: the prior year base excluding the 130bps benefit from Yeezy was c.48.0%. Currency remains a drag (c.100bps) but is less of a negative for gross margins than in H1 (c.- 300bps). Most other factors are likely to be positive (raw materials, channel/category/geography mix, with freight more neutral) but some of these mix benefits are likely to fade compared with the first half, particularly as wholesale and North America growth accelerate. We think that consensus expectations (Q3 50.1%) are likely to be in the right ball-park, given these moving parts. . Q3 profit expectations: Adidas...
Momentum still building, cautious guidance doesn''t worry us Adidas had pre-announced its Q2 results so there weren''t too many surprises today. However, apparel sales accelerated and the company said it was seeing momentum in certain new footwear categories. We had noted in ADIDAS / NIKE B: Stripes vs Swoosh that there was still scope for Adidas brand heat to increase and broaden: Q2 provides evidence of further steps in the brand recovery. The shares reversed on the conference call as management flagged that demand was outstripping supply - a quality problem and not a big concern for us, as we discuss inside. We leave forecasts broadly unchanged and reiterate our Outperform rating, TP EUR 260. Q2 replay A small EPS beat due to lower finance costs was a small positive, but the main news today was the geographic and category detail. Both DTC and Wholesale grew strongly, excluding the distortions of Yeezy. Footwear continued to grow strongly (+17%) and encouragingly Apparel accelerated from +2% in Q1 to +6% in Q2. Lifestyle grew ''double digits'' as it did in Q1, unsurprisingly due to the Originals/Terrace strength, while Performance also grew double-digits, boosted by football jerseys, football boots, running and basketball. Notably the strength in running is no longer just in high-end shoes but also beginning to see success in the more mass-market Supernova and Adistar franchises. Outlook - sticking to the gameplan Two weeks ago Adidas had raised its full year EBIT guidance from EUR 700m to EUR 1bn. So, unsurprisingly, this guidance is reiterated today. In H2 we model c.12.5% cFX sales growth excluding Yeezy and forecast EBIT of EUR 1.1bn, including a modest (EUR 20m) profit from Yeezy. Reiterate Outperform We maintain our DCF-derived target price at EUR 260, based on terminal EBIT margins of c.13%. This implies 23x 2026 earnings. We reiterate our Outperform rating.
A year on from upgrading Adidas and downgrading Nike, our head-to-head analysis shows the game isn''t over yet. Looking at their major product franchises as well as social media and engagement trends, Nike seems to be running out of breath while Adidas is increasingly match fit. Even as other challenger brands emerge, share shifts between Nike and Adidas matter - and Adidas is currently gaining ground in this tug-of-war. Adidas'' brand heat is rising and share gains should mitigate industry-wide risks. Its targets will be easier to achieve if Nike''s momentum remains weak, as we expect it to. We see Adidas (+) as a long-distance runner and raise our TP to EUR260. Nike (-) stays at USD60 TP.
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Key message Adidas IR held a group sell-side ''quarterly logic check'' call ahead of its Q2 results, which it is due to report on 31 July. We highlight that there has been no change to full-year guidance (see Figure 3) and that the purpose of the event was to provide a re-cap of previously published comments. There was no new commentary on Q2 trends or profitability. Main topics . Q2 cFX sales growth: at its Q1 results in April, management guided for underlying ex-Yeezy sales growth in Q2 to accelerate from the +5% achieved in Q1. At the time it had acknowledged that if April trends continued then it was possible that this could be double-digit constant currency growth. It remains to be seen how fast the acceleration will be. One of the reasons for management''s guidance of a sales acceleration is the benefit of Euro 24 and Copa America. Consensus looks for Q2 +6% constant currency albeit it is unclear whether this factors in any benefit from Yeezy sales in the quarter. See Figure 1 for details. . Yeezy impact on sales: as a reminder, Adidas began 2024 with EUR 268m of legacy Yeezy inventory. In Q1 it generated sales of EUR 150m and profits of EUR 50m and had around EUR 200m of inventory remaining. Its guidance is to sell this at cost, which might include some profitable sales offset by some write-offs. During Q2 Yeezy was sold through its DTC channel and selected wholesale partners and in some cases there was some discounting. It has previously said that the economics of each drop would be different due to channel mix and need for discounting of broken sizes. Q2 will have some revenue benefit from Yeezy. It laps EUR 400m of sales from Q2 23 which, other things equal, is a 750bps drag to reported sales. . Q2 gross margins: many of the Q1 margin drivers continue into Q2. These include the favourable mix by channel (DTC) and product (e.g. high margin terrace trend) as well as regional mix. Currency is as large a headwind in Q2 as Q1 because of...
We have adjusted our estimates following the company''s Q1 results. We do not consider the changes to be material; our rating is unchanged.
Q1 pre-release: a dummy and then a beat Adidas pre-released its Q1 results headlines after market and raised its full year profit guidance, just when a pre-release looked unlikely due to a scheduled pre-close sell-side call. Most of the beat was underlying sales growth and faster margin recovery, while Yeezy also contributed. Management raised its full year EBIT guidance to EUR 700m, but we bank the Q1 beat and raise our estimates to EUR 1bn. The brand momentum is clear, and gross margins are also recovering more quickly than expected. We reiterate our Outperform rating, target price lifted to EUR 225 (from EUR 220). Headlines suggest a good quality profit beat Although we only have the Q1 headlines, a few things stand out. Q1 EBIT of EUR 336m (EUR c.286m excluding Yeezy) was ahead of consensus EUR 143m. Constant currency sales growth was +5% excluding Yeezy (+8% inc. Yeezy), when just six weeks ago management was guiding ''flattish''. This implies a strong exit rate and good brand momentum. In addition, we estimate that gross margins were +600bps excluding Yeezy, and given a negative currency effect (c.-400bps) the underlying recovery is very strong. Gross margins were over 50%, which is management''s ambition for 2026. Full year EBIT guidance raised from EUR 500m to EUR 700m; we move higher Whilst we shouldn''t forget that full year consensus expectations were EUR 1.2bn in January, and that management is focused on its 2026 goals, the momentum suggests a much stronger 2024. We bank the Q1 beat but not much else, and this means we raise from EUR 764m to EUR 1,000m. This assumes a further EUR c.120m profit for Yeezy which is explicitly not included in management''s guidance. Consensus was at EUR 884m prior to the pre-release, and we expect it to rise also. Reiterate Outperform, TP EUR 225 We raise our DCF-derived target price to EUR 225, based on terminal EBIT margins of 12.5%. This implies 30x 2025 (partially recovered) earnings. We reiterate our...
What happened? Pou Sheng, the key distributor for Nike and adidas, reported FY23 results last night and we listened to their earnings call in Mandarin. BNPP Exane View: Our key takeaway is that the sporting goods environment in China remains challenged with revs anticipated to be flat. The silver lining is that Pou Sheng is adding exciting new brands like Hoka, Saucony, Bosideng, and the Korean yoga brand Xexymix (see link). The China sporting goods market is very challenged: Post our China Sporting Goods trip, we came back very cautious on the state of the Chinese consumer and demand for sporting goods within the country (see The Great Wall). This view was reinforced by Pou Sheng''s earnings call last night. Management noted that they are concerned with the state of China''s macro and potential geopolitical risk. Maybe the latter was a reference to Congress''s TikTok ban which could result in backlash towards iconic US brands like Apple, Starbucks and Nike in China. Management is projecting flat revenues for FY24. This is concerning as Pou Sheng, along with Topsports, are the two key retail partners in China and consensus is modelling Nike China revenues up 10% for FY25 which starts in a few months. Nike China up 8% was driven by sell in from wholesale and that''s a risk when Pou Sheng and Topsports are cautious on the environment. At adidas'' full year results yesterday, the company disclosed Greater China Q4 constant currency revenue growth of +37%, reflecting strong growth in both wholesale and own retail as well as multi-year soft comps. Management said that it has been able to market to consumers in an ''almost normal way'', noting that it was the best market situation it has faced in four years. It guides 2024 Greater China revenues to grow at double-digits (underlying cFX growth, excluding Yeezy). Nearer term, management noted that store traffic fell off after CNY but this was offset by online. Store revs represent 73% of FY23 revenues for Pou...
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Heating up Having already given 2024 guidance, there were few surprises in today''s full year results. Management''s tone was buoyant, living up to adidas'' new, more confident slogan: ''You Got This''. The news today served to reinforce the sense that Adidas brand momentum is building and that the turnaround is firmly on track. Our forecasts are broadly unchanged but lower net debt, lower capex and the passage of time drive an increase to our DCF-derived price target. Outperform. The promise of 2024 The strong product pipeline, building brand heat and positive wholesale order book give us continued faith in the Adidas turnaround. 2024 is another stepping stone towards recovery - EBIT margins of just 3.4% on our forecasts - but one of plenty of opportunity with the normalisation of inventories, building order book and several key sporting events such as EURO 24. Elevated inventory levels in North America remain a challenge for the business, but management''s commentary about the start to the year and the momentum in EMEA and China is encouraging. We forecast underlying Q1 constant currency sales growth of +2% before Yeezy, accelerating to double-digits in H2. Long-term health Management acknowledged its 2024 EBIT guidance of EUR 500m could be conservative (BNPP Exane EUR 764m) but is mindful that the turnaround will take time and is focused on delivering 10% EBIT margins by 2026. Healthy sales growth driving operating leverage and an improved full price sales mix (already improving online) are important unlocks for this. We model 2026 margins of 10%. Reiterate Outperform Net debt was lower than we had expected and capex guidance was also lower. These, and the passage of time, push up our DCF-driven target price to EUR 220 (previously EUR 210) on broadly unchanged forecasts. Reiterate Outperform.
Medium term outlook unchanged After market yesterday, Adidas guided 2024 EBIT of EUR 500m, less than half the level of consensus. We cut our 2024 forecasts materially, albeit not all the way down to this level. While the market''s reaction (-2% at close) looks generous, it demonstrates the confidence the market has in Adidas achieving its medium-term margin targets. On these goals, which we also continue to believe in, the stock continues to look attractive, in our view. Q4 23 beat, FY24 miss Q4 profits beat expectations despite the Argentina Peso devaluation hitting EBIT by EUR 100m, but this was the side show. The main news was management''s 2024 EBIT guidance of EUR 500m, far below consensus of EUR 1.2bn. A number of areas look conservatively guided, such as Yeezy and gross margins. Implied cost growth is also higher than we had modelled. We land at EUR 765m, a margin of c.3.5%, higher than guidance mainly due to Yeezy profitability. Medium-term 10% margins still the target Management reiterated its goal for 10% margins by 2026. Evidence in its favour includes a building order book with wholesale partners and a clear pipeline of new products. Moreover, management was clear about the opportunity to drive operational efficiencies and operating leverage. It appears to have chosen that in 2024 Adidas should focus on building the top-line momentum, however. We still forecast c.10% margins in 2026, albeit we lower our 2025 expectation from c.9.0% to c.7.5%. Instant replay, maintain Outperform Adidas'' market cap fell by EUR c.650m today. This is no more than the difference between yesterday''s 2024 consensus and management''s new guidance. This suggests the market hasn''t changed its assumptions for 2025 or beyond. Whilst this feels generous, and we shave off more from our valuation, our DCF-driven target price only falls from EUR 220 to EUR 210. Reiterate Outperform.
Topsports reported 3Q24 total sales up low teens YoY after 2Q declined LSD. We listened to the earnings call held in Mandarin this morning and relay key takeaways: 1) Trends improved in 3Q and continued into December but likely due to noisy compares from Covid disruption, 2) YTD performance remained at 80-85% of 2019 levels and 3) emerging brands continue to outperform. 3Q up low teens off very easy compares 3Q24 revenues (November end) were up low teens compared to 3Q23 down high teens YoY. We note that LY''s Zero Covid disruptions started in October and really accelerated in November before ultimately the government dropped the policy in early December LY. We estimate Topsports'' September/October time period was up only single digits before accelerating in November off easy Covid compares. This is similar to Pou Sheng''s reported Sept up 9%, Oct down 4%, Nov up 19% = 7% growth for September-November combined (see figure 2 on page 2). When asked during the QandA, Topsports mgmt. noted that YTD revenue performance is still only 80-85% of 2019 levels. December so far in line with 3Q Management noted that December so far is in line with 3Q results (up low teens). We know that Pou Sheng was down 29% YoY in December last year, which was the height of the Zero Covid disruptions. If December is up low teens, this would imply a deceleration on a two year stack. We heard from Starbucks that the Chinese consumer is weakening. Similarly, we''ve heard from Asia-based clients that since our trip in October, consumer sentiment is deteriorating and there is trade down. Topsports also noted that we should consider that CNY is Feb 10, 2024 vs Jan 22, 2023. What about the brands? Nike/adidas represent 86% of sales. They noted that the other brands were outperforming. They didn''t mention HOKA this morning but we note that the store roll out has begun. Topsports noted the drag on adidas sales from terminating Yeezy and downsizing its Neo line. More on page 2.
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Controlling the game Management had already pre-announced the Q3 headline results so there were limited surprises today. The main debate was the extent to which management is setting conservative guidance in Q4 and controlling expectations into 2024. It is carefully managing wholesale orders and wants to manage the brand heat of its franchises, which limits the near-term forecast upside risk, but in our view the turnaround story is showing good traction. Building momentum in Q3 Headline results had already been released but several things stood out. Inventory reduced more than we had expected; sales in China grew by 10% excluding Yeezy; and the quality of profits in Q3 was a bit higher than we had expected, since Adidas booked higher one-off costs than we modelled. Managing the brand heat 2023 is about laying the foundations for 2024 and beyond, and the main reason for sticking to its FY/Q4 2023 guidance is a desire not to chase sales but rather manage brand heat. Management did not comment in detail about 2024 but it expects to end 2023 with a positive wholesale orderbook for Q1 and Q2 and expects a strongly positive orderbook for Q3 and Q4. Supporting the growth in H2 24 will be management''s first co-ordinated go-to-market seasonal campaign for Autumn Winter 2024. The company was bullish on the product for AW24, citing good feedback from wholesale partners. So while the profit recovery may be H2 24 weighted, we think the turnaround is on track. Reiterate Outperform Our EBIT forecasts are broadly unchanged, but our profits fall on higher financial cost items. Our DCF valuation remains at EUR 210 and we reiterate our Outperform rating.
Adidas Q3 preview - due pre-market on 8 November We expect Adidas to report similar trends in Q3 as in the prior quarter despite investor nervousness about market conditions in the sporting goods industry. We factor in a slightly higher profit contribution from the sale of Yeezy products and from supply chain benefits beginning to flow through gross margins. We look for reported Q3 EBIT of EUR 265m. Q3 expectations - should continue to show good progress As set out inside, we think Adidas will continue to show good progress at the early stages of its turnaround. We expect Q3 constant currency sales to be flattish year-on-year, like the prior quarter, helped by estimated Yeezy sales of EUR 350m. Profits will remain distorted by one-off costs and Yeezy profits. We show a Q2 profit bridge inside and look for a statutory/reported EBIT of EUR 265m. Full Year 2023 - underlying and reported profit guidance look conservative We continue to think that management''s full year sales guidance (for a mid-single-digit decline) is conservative. Management''s FY underlying EBIT guidance of ''around the break-even level'' also looks conservative to us: we model EUR 211m. This excludes the guided effects of Yeezy write-downs (up to EUR -400m) and strategic change costs (up to EUR -200m). Given that some Yeezy inventory has been sold in Q3 (we estimate EUR 125m of stock), we model a more limited write-down of EUR 275m in Q4. As a result our Adj EPS forecast rises from EUR 0.92 to EUR 1.33. Raising our estimates and reiterate Outperform EPS is rather meaningless for 2023 but we raise our underlying EBIT forecast (prior to Yeezy profits, exceptional restructuring and inventory write-down costs) from EUR 168m to EUR 211m, ahead of management''s break-even guidance. Our target price remains at EUR 210, which is based on a DCF valuation with c.13% long term margins. We estimate that the shares are only pricing in single-digit margins in the long-term, and maintain our...
Kicking around the investment case Back in July we upgraded Adidas to outperform (ADIDAS, INDITEX: From Z to A) and downgraded Nike to underperform (NIKE B: Hair Jordan). Since then, we have debated our investment theses with investors, and the shares have fallen in recent days as concerns about the 2024 outlook increase. This report discusses the pushbacks to our Adidas investment case. We discuss the pushbacks to our Nike call in More Hair to the Story. Sales - pushback is that building brand-heat is only in selective product areas The pushback we get is that Adidas'' momentum is concentrated in a few sneaker styles. We don''t really disagree with this one: but it''s a great platform to build on, and our analysis of social media, app usage and search trends shows encouraging signs for Adidas brand heat compared with peers. Margins - pushback is that Adidas'' profit margin rebuild and potential is less than hoped for The pushbacks we get are that margin progress in 2024 may be slow and that medium-term potential is limited due to structural factors (Yeezy and China). We remain bullish: our 2024 margin bridge puts us 17% ahead of consensus EBIT, and we think double-digit margins are achievable by 2026. Valuation - pushback is that it''s too late to invest in Adidas The pushback we get is that the shares have already moved sharply and that it is too late to invest in Adidas. Yet the sell-side still favours Puma and we think there is valuation upside. The stock trades on a historical average EV/Sales multiple and we estimate is only pricing in c.11% long term margins. Conclusion: a top pick for 2024 We think Adidas should be considered one of the biggest brand revitalisation stories for 2024. There''s more brand work and inventory clean-up required, but we can already see progress. Industry dynamics look more favourable in 2024: normalised supply chains and inventories, important sporting events, and opportunities in China. We think there is more to...
Game highlights Adidas had already pre-announced Q2 results and so today was more about the detail. However, for us the key highlights were that China was ahead of our expectations, inventories are more under control, and Direct to Consumer was notably strong. There are encouraging signs of brand momentum and today we factor into our forecasts another tranche of Yeezy inventory, which lifts current year forecasts materially but leaves outer year forecasts unchanged. Outperform. Momentum in Q2 Flat constant currency revenues had already been pre-released but the performance in Greater China (+16.4% yoy with double-digit wholesale sell-in and sell-out) was a stand-out. Wholesale is being tightly controlled globally, while DTC was ahead of our expectations. Management called out that inventory is almost normalised in China, and only remains too elevated in North America. Brand heat is building in its lifestyle business and it is continuing to localise its marketing. Outlook We factor into our Q3 forecasts that another EUR 100m of Yeezy inventory is sold, but still assume a material inventory writedown in Q4 which could prove too conservative. Management almost acknowledged as much on its results conference call. The EPS impact of this extra Yeezy ''drop'' is material in 2023. The prize, though, is the improvement in group profitability in 2024 and 2025, rather than one-off inventory sales. The gradual scaling of inventory into the ''Terrace'' trend and encouraging momentum in the regions strengthen our conviction of a rapid bounce-back of profitability in 2024. Reiterate Outperform The sell-side still favours Puma over Adidas. However, we sit c.30% ahead of Adidas 2024 consensus whereas we sit below for Puma. We upgraded Adidas in ADIDAS, INDITEX: From Z to A and maintain our EUR 210 price target.
Adidas or Zara: Europe''s footwear giant or fashion leader? A year ago we benchmarked Adidas against Inditex, and since then the earnings trajectory couldn''t have been more divergent, with Adidas profits wiped out and Inditex delivering consistent upgrades. But today we revisit the set-up between Europe''s footwear giant against Europe''s fashion leader and switch our preference, upgrading Adidas to Outperform and lowering Inditex to Neutral. The Adidas brand is inflecting Profits matter, but sales momentum needs to come first. Our analysis of social media, app usage and search trends suggest that Adidas'' brand heat is warming up, while our US colleagues show that Nike''s is cooling in their downgrade report (Hair Jordan). Gross margins should muscle up Adidas'' profitability Last year Inditex generated three times more profit per item than Adidas. The key for Adidas'' profit recovery is gross margin, and we bridge all the moving parts to show that margins should recover rapidly. We look for EBIT margins of c.6% in 2024 and c.9% in 2025. Inditex earns a lofty c.18%. Adidas'' EPS momentum should build The sell-side still favours both Inditex and Puma over Adidas. However, we sit c.30% ahead of Adidas 2024 consensus whereas we sit in line with consensus for Inditex. We upgrade Adidas to Outperform, with a DCF-driven target price of EUR 210, arguing for an earnings upgrade cycle. As we go to print, Adidas has pre-announced a small underlying Q2 23 beat, reinforcing our conviction in this. What''s changed at Inditex (+ to =)? Inditex has grown sales well ahead of its peers since the Covid pandemic and earnings momentum has been positive. From here, with a near-record market capitalisation and EBIT margins back to decade-highs, we see less scope for earnings upgrades. We sit in line with consensus, and with the stock pushing up against our target price we downgrade to Neutral.
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ANTA reported 2Q23 results this morning. We listened to the earnings call in Mandarin and the key message is that demand slowed in June and continues into July. This corroborates what we heard from Topsports on June 27 (see note) as well as Pou Sheng''s June results (down 0.4% YoY, see note). We relay key implications for the international brands under our coverage. 2Q results better than 1Q, but due to easy compares from 2Q22''s Covid lockdowns For 2Q, the ANTA brand was up HSD YoY while Fila was up high-teens YoY. This compares to ANTA up MSD and Fila up HSD in 1Q though we note 2Q had a very easy YoY compare, in particular for the Fila brand due to LY''s Tier 1 city lockdowns. ANTA will be on the offense from a marketing perspective ahead of the Paris 2024 Olympic Games and they discussed the recent signing of NBA star Kyrie Irving to create a signature product line (see press release). Figure 1 on page 2 shows the revenue performance for the key sportswear brands operating in China. Emerging out of the Covid disruptions, with 2Q results so far we observe that ANTA/Fila have gained share on a 4 year stack. ANTA Group''s inventory to sales was less than 5x for both ANTA and Fila and discounting improved slightly sequentially vs 1Q. Turning to the other brands which consists of the outdoor brands Kolon and Descente (representing 8% of group sales), these were up 70-75% YoY in line with 1Q up 75-80%. Momentum in the outdoor brands continues and we may hear about China outdoor momentum from VFC and COLM this earnings season. 2Q performance slowed and extends into July-to-date During the QandA portion of the call, management noted that trends slowed in May and June and the slowdown continued into July. Overall shopping frequency has decreased. FY23 revenue guidance of DD growth was maintained. ANTA is still expected to grow DD but mgmt. acknowledged it is more 2H weighted. Fila saw June and July trends soften but maintained DD growth. The overall...
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Adidas Q2 preview - due pre-market on 3 August Adidas'' Q2 results, released on 3 August, are likely to show underlying trends which are broadly as expected, with an underlying sales decline of high single-digits, consistent with annual guidance. This might disappoint those investors hoping for a raise in guidance. For those looking at the glass half-full, the very high-profile sale of the first tranche of Yeezy inventory back in May will improve the reported results, generating a profit and reducing the write-down risk. Our underlying (ex-Yeezy) estimates are unchanged and we expect Q2 reported EBIT to be break-even. Q2 expectations - underlying unchanged, but a profit boost from the Yeezy sales As set out inside, we think the underlying quarter will have shaped up broadly as expected, with Adidas focused on clearing inventory and cautiously selling to the wholesale channel. Gross margins are likely to have been under pressure from currency, freight and markdown. We assume that EUR 100m of the EUR 500m Yeezy inventory has been sold in Q2, which we estimate will boost Q2 EBIT by EUR 80m, although it is unclear what proceeds will go to charity. We increase our reported EBIT forecast from EUR c.-80m to EUR c.0m. Excluding Yeezy, our assumptions are broadly unchanged. Full Year 2023 - again unchanged underlying, but lower write-down risk Management guidance is FY underlying EBIT of around break-even, excluding the effects of Yeezy write-downs (up to EUR -500m) and strategic change costs (up to EUR -200m). We don''t think the underlying picture has changed, but the Yeezy release on 31 May could have added GBP 80m profit and reduced the write-down risk by EUR 100m. This is likely to be reflected in company guidance. Raising TP but stick on Neutral EPS is rather meaningless for 2023 but we raise our underlying EBIT forecast (prior to exceptional restructuring and inventory write-down costs) from EUR 107m to EUR 185m, boosted by Yeezy profits and...
Topsports reported 1Q24 sales up low 20% YoY this morning. We listened to the earnings call in Mandarin and relay key points: 1) Momentum has slowed with June weaker than May on a YoY basis, and results have yet to inflect vs 2019 levels, 2) 6/18 and Dragon Boat Festival were lackluster 3) adidas performance continues to improve, and 4) management is excited for the HOKA roll out. Momentum started to fade in May and continued through June Topsports reported 1Q24 sales up low 20% YoY (May end). This is line with its prior communication in early June (4Q22 earnings call) that March-April grew 20-30%, indicating May likely weakened. Similarly, Pou Sheng reported May revs up only 7% YoY compare to March/April''s 30%/53% YoY growth (see May Showers?). Topsports mgmt further indicated this morning that June was weaker vs. May on a YoY basis. Monthly YoY momentum has slowed which could be problematic. 6/18 met expectations but the compares were tough due to the timing of 6/18 and the Dragon Boat Festival. The top line was driven by volume while conversion and ticket sizes have remained flat YoY. Footwear continues to outperform apparel. A Covid resurgence in late May caused some disruption. Convergence of the two major brands Nike/adidas represent roughly 90% of Topsports sales per their filings. During Topsports'' FY23 earnings call earlier this month, mgmt. called out that the performance between Nike and adidas was converging. This morning, Topsports further conveyed optimism on adidas given 1) material improvement in inventory positioning, 2) strong sell through of new products, and 3) prudent management on pricing and discounts. Adidas'' improving positioning is a competitive force to be considered especially in Tier 1 and 2 cities. Topsports excited for HOKA roll out In our recent DECK note we flagged that Topsports was partnering with HOKA. See pg 2 for more.
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Stronger revenues win the day Adidas'' Q1 results beat on both sales and profits. It''s very early days in the recovery, with inventory levels still elevated, but the market took this as an early win. There are signs of momentum building and consensus expectations for 2024 appear too low to us. However, investor expectations are higher and we estimate using reverse-DCF that the stock is already pricing in over 12% operating margins. We maintain Neutral and prefer to play stronger wholesale trends through JD Sports (+). Momentum building, and that''s what matters most There is plenty of work for Adidas to do. It does not expect to have cleaned its inventories until the end of Q3 and is still considering 3-4 scenarios of how to exit its EUR 500m Yeezy inventory position. However, flat sales in Q1, double-digit sell-out in China and momentum in the ''terrace'' footwear trend are all encouraging. In addition, as CEO Bjorn Gulden says, in basketball its Fear of God Athletics collaboration could be a ''game-changer''. 2024 and 2025 - that''s the prize Management has not set out its medium-term goals: it is likely to do this at a CMD in November or March. However, it is sticking to its 2023 guidance (underlying EBIT of nil) to clean the decks for a better 2024. Management is confident of delivering 10% margins but is not setting a date - clearly 2025 is in play for this, however. Consensus only models 7% in 2025, below our own 8.6%, but we think investor expectations are higher than this. Raising TP but stick on Neutral EPS is rather meaningless for 2023 but we raise our underlying EBIT forecast (prior to EUR 700m of exceptionals) to EUR 107m, ahead of management''s ''nil'' guidance. Our target price rises to EUR 165, which is based on a DCF valuation with 12% long term margins. We estimate that the shares are already pricing in margins above this level, and maintain our Neutral rating.
Monday marked the 127th running of the Boston Marathon, the world''s oldest annual marathon and one of the six global marathon majors. Winners in the women''s and men''s category wore On and adidas, respectively (see link). Only one of the six podium finishers wore Nike, a noticeable shift from years past when Nike dominated the circuit. This parallels market share shifts in the broader running category with Nike Running losing $1bn+ of revs (see below). Challenger brands are taking share. Nike used to dominate the podium... Nike historically has dominated the six major marathon events (Boston, New York, Chicago, London, Berlin, and Tokyo). Nike extended its lead in long distance running technology with the release of Vaporfly in 2017. Nike''s proprietary foam was so effective that Cornell University conducted a study showing that Nike''s new technology was giving runners a statistical edge in races (see link) and a prototype model of the Vaporfly that was used to run a sub-2 hour marathon was banned from competitive use (see link). Nike had a clear advantage over the field, with 31 of the 36 podium finishers in the six major marathons in 2019 wearing Nikes (see link). ... but the field is catching up Nike kicked off its latest earnings call by highlighting its heritage in running and its newly launched Invincible 3, but we believe that the field continues to catch up to Nike in running (see 3Q23 recap). The results of the Boston Marathon earlier this week further support our view. Nike had less of a presence on the podium this year, with 1 of the 6 runners wearing the brand versus 5 of 6 in 2019 (see Fig 2-3 on page 2). Impressively, adidas was worn by the top 4 male finishers and 6 of the top 10 male finishers. From the women''s group, On Running athlete Hellen Obiri won first place (finished 6th in NYC marathon), and the 6th place women''s finisher wore Chinese brand Xtep. For Xtep, this marks another milestone as the brand recently was worn...
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Some changes on the team sheet and the tactics are becoming clearer Adidas'' full year results announcement was only a month on from the large cut to guidance, so unsurprisingly the financial outlook hasn''t changed. But the shake-up has started, with board-level changes and indications about the shift in strategy. Cultural shift, speed of the organisation, focus on wholesale and marketing seem to be the focus rather than innovation. Management was clear it is aiming for double-digit sales growth and margins, but it will take time. We think consensus has it about right for 2024, with c.5% EBIT margins. We remain Neutral. 2023, a transition year 2023 is ground zero: guidance is for zero underlying EBIT, although management hinted at upside risk and a decision about its Yeezy inventory has still not been taken. Just as he did at Puma a decade ago, CEO Bjorn Gulden announced some important board-level changes and is focused on organisational structure and culture. His flagged the expected leaning back towards wholesale channel (a positive for JD Sports, +), the need for more localisation, and investment in wider range of sports. Surprisingly, he does not see a problem of innovation but rather the speed of the organisation and the way the brand goes to market (advertising, channel) need to improve. 2024 and 2025: from zero to hero CEO Gulden said that adidas can return to double-digit operating margins in the future. A thin consensus models double-digits in 2027, while rival Puma is aiming for 10% in 2025. China, Yeezy, and the impact the new team has on product and marketing (mainly from Autumn/Winter 2024 onwards) will likely set the speed of margin recovery. One thing we know is management will not cut corners but instead will ensure the fundamentals are in place before profit margins expand. Building muscle - and brand heat - takes time, but things have already kicked off Adidas shares, at EUR c.147, roughly price in long term operating margins...
Adidas: Adios, profits Yesterday Adidas warned that underlying operating profits in 2023 would be nil, and that it would be loss-making after exceptional costs. Although there is little visibility about the shape of a recovery from 2024 we have assumed a slow rebuild of margins, reaching high single-digits by 2026. Even on this basis, valuation does not look demanding. But investors will need to slip on the adizeros and be prepared for a marathon not a sprint. We maintain our Neutral rating. 2023 outlook: he just did it Investors had been fearing a profit reset from new CEO Bjørn Gulden, who joined on 1 January. The stock had shrugged off material consensus downgrades over the past few weeks, but the announcement should take consensus 2023 underlying EBIT down from EUR c. 1bn to nil: half from not selling Yeezy, and half from more cautious underlying assumptions like higher markdown and slower sell-in. On top of this, E200m of cost exceptionals to streamline the group and a likely EUR 500m inventory write-off of Yeezy should take reported 2023 EBIT to EUR (700)m. 2024: getting any yeezier? Any shape of recovery in 2024 is unclear, although new product innovation is likely to be H2-weighted. We still think it possible that the (former) Yeezy designs could be part of the plans, and China should also be a drive of recovery. For now we have assumed a recovery of 2024 sales growth to above 10% and EBIT margins to c.5%, which as we show in Figure 1 seems reasonable to us. Valuation and risks Adidas shares had risen 22% year to date prior to today''s c.12% retreat. It trades on EV/Sales 1.4x, which Figure 2 puts into historical context. Our DCF-driven price target only falls from EUR 145 to EUR 135, which is a CY25 P/E of c.16.5x. The main challenge for the stock is that green shoots are probably more than a year away, and in the meantime the brand is giving up market share to rivals. Yet we find the valuation quite well underpinned and maintain...
We continue to see the local brands Anta, Li Ning, Xtep and 361 gain share at the expense of international brands Nike, adidas, Puma and Skechers. Repeatedly, the market blames Covid as the culprit but we disagree. Our Chinese social media work (Baidu, Douyin and RED) empirically shows that Chinese consumers are actively seeking local brands which reaffirms our view that market share changes are more structural. The data shows the #1 cool, searched brand in China is not Nike but Anta. Nike''s 35x multiple could be at risk if the local brands continue to take share. Why are we using social media and how did we aggregate the data? While real life in China continues to be disrupted, China''s social media platforms are virtual and hence less impacted by Covid. Using our Mandarin skills, we pulled social media data for the top 4 local brands and 4 top international brands to determine what brands are more sought after. The data supports our view: domestic is cooler than international In 2019, Nike was the #1 sportswear brand on Chinese social media. The brand had 38% of searches on Douyin, 26% on Baidu, and 44% on RED. In 2022, Nike has seen its share slip ~20 points on average across all three sites and it''s no longer the #1 brand on Chinese social media. Figure 2 shows it''s now Anta. International brands overall have seen their share of searches fall 30 points on average (2/3 driven by Nike) while local brands have gained 30 points (2/3 driven by Anta). See figures 2 and 3 on page 3. Pages 4 through 11 dig into the social media data across these platforms. Please reach out if you would like to receive the data. We continue to voice our concern that the market anticipates a China recovery for Nike but we could see Nike continue to disappoint on China and consensus further revised toward our FY23 EPS of $2.66. We appreciate that Skechers on the 3Q call voiced conservativism regarding China for calendar 2023 while the brand continues to take share...
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Adidas'' Gulden ticket? Having turned around Puma, Bjørn Gulden now crosses the city to take up the CEO role at Adidas next year. We revisit the early days of the Puma recovery to look for indications of what could happen next. We also revisit the numbers, cutting EPS substantially for both following a bruising Q3. Adidas'' chances of a successful turnaround are now far higher, in our view, but it''s going to take time. We maintain our Neutral Adidas rating, viewing Puma''s valuation and momentum as more attractive. Becoming the hero of Herzo: match tactics Bjørn Gulden has turned around the Puma brand over the past 9 years. He now crosses the city of Herzogenaurach to take up the role of CEO at rival Adidas, returning to where he worked in the 1990s: if he also turns around Adidas then he would achieve legendary status in the industry. While filling the void of losing the Yeezy agreement is key in the near-term, how much he can fire up brand heat and how Adidas navigates the Chinese market are the things that will determine the ball game. Vital statistics: what the numbers suggest 2023 is likely to be a year of strengthening the foundations at Adidas: clearing through excess inventory, mitigating costs, driving its reset strategies in basketball and China, and filling the gap left by Yeezy. It doesn''t seem likely to be a year when the company posts great numbers. We forecast Adidas 2023 net income of EUR c.810m, or an EBIT margin of 4.8%. On the other side of Herzo we expect Puma to achieve 2023 EBIT of EUR c.670m at the higher EBIT margin of 7.2%. End game: valuation and stock view Adidas shares have rightly rallied on the appointment of Bjørn Gulden as CEO: a quick (1 Jan) and smooth transition to a proven executive. From here we expect slower progress from the stock: our new Adidas target price of EUR150 already bakes in a return to 12% margins. We model a long- term margin of 10% for Puma, implying a target price of EUR65 and more...
Transfer between two “rivals” smoother than expected Bjørn Gulden is a 30-year veteran in managing sports & footwear brands adidas currently facing a perfect storm of challenges
ADIDAS - NEUTRAL | Under Review New guidance cut amid lower consumer sentiment, excess inventories and China Preliminary Q3 2022 numbers short of expectations ADS slashes FY22 outlook as it is now plagued by excess inventory and fiercer promotional activity Negative sentiment justified by an unprecedented series of challenges
Second half action still interesting, but focus is on 2023 Adidas had pre-announced Q2 headlines and adjusted FY guidance at the end of July, so today was really just about testing the conviction levels about the H2 outlook and hearing what management might say about 2023. Management''s quantification of the H2 wholesale order book was particularly helpful and likely shifts the focus almost entirely to 2023. But here the visibility is low. On our revised forecasts the stock trades on CY23 c.20x and we maintain our Neutral rating. Not much learnt from Q2 Besides some regional detail, such as North America beating expectations, not much stood out from Q2 results since the headlines were already known. However, inventories have still not normalised and big drivers of earnings were ''other operating income'' (Reebok) and a tax provision release (EUR c.130m). H2 guidance and 2023 outlook Adidas said that its H2 wholesale order book is up more than 25% across its markets (excluding China), and this underpins its H2 guidance of ''mid-teens'' growth (excluding China). China is likely to decline double-digits, with EUR 400m of product take-backs, but the FIFA World Cup is expected to add EUR 400m of global revenues. There was not much on 2023, besides acknowledging currency pressure, and management remains committed to 2025 targets despite the situation in China. Swooshing forecasts, in line with guidance We now push through FY22 estimate changes reflecting the company''s revised guidance of Net Income EUR of 1.3bn. The bigger debate is how much profits might bounce-back in 2023: our Net Income EUR 1.6bn implies P/E c.20x versus peer Puma (+) on c.22x. Our Adidas target price only falls modestly (to 195p) because we continue to believe in mid-teens long term margins. However, we think Puma has better 2023 visibility, momentum, and we continue to prefer it over Adidas.
ADIDAS - NEUTRAL vs. BUY | EUR235 VS. EUR305 (+38%) Second PW in a row as China is now adidas’ biggest thorn in its side Yesterday evening, adidas issued a second PW due to a softer recovery in China, and its anticipation of a potential slowdown in other markets that would cause a double whammy: 1/ softer top-line growth and 2/ aggravating the risk of excess inventory. As such, even if the lowered EBIT margin target implies a ~25% downside risk to CS expectations, we believe that risks surrounding excess inventory are not totally factored in. Hence our rating downgrade to Neutral whilst our new TP of EUR235 results from new FY22-23 expectations (-19% on avg.) and revised WACC assumptions.
Adidas or Zara: Europe''s footwear giant or fashion leader? Adidas and Inditex have closer direct peers than one another but the two biggest names in our European coverage universe are intriguingly poised: the stocks have performed in line with each other since Covid and sit on similar valuations. Which has the best prospects? We benchmark the two businesses and change our team colours, switching from Adidas (+ to =) to Inditex (= to +). A head-to-toe comparison We tend to benchmark Adidas against Puma/Nike, and Inditex against HandM/AB Foods. For sure, the models have clear differences. But we draw out the many similarities by comprehensively benchmarking the operating models: similar revenues, cost ratios, growth drivers, and valuations. Near-term risks and momentum It''s a tough environment for both. Adidas'' larger exposure to China exposes it more to China''s Zero Covid policy. Its greater USD cost exposure is also a risk for 2023. Adidas'' brand heat lags peers while Inditex''s sales have fully recovered from Covid, and Inditex is less operationally and financially geared. We broadly sit in line with consensus for Adidas and above for Inditex. Returns and growth prospects Inditex generates higher returns than Adidas: higher profits per unit, GMROI, EBIT margins and ROCE. In time Adidas can transform its returns profile, and should generate higher EPS/TSR growth, but we prefer Inditex''s growth algorithm in these markets, particularly its dividend profile. A head-to-head decision: Adidas/ Zara, which is the brand to own? In such a tough consumer backdrop we remain selective across the sector, hence the head-to-head comparison. Since the start of 2020 both Adidas'' and Inditex''s EV have fallen by c.44%. The stocks trade on almost identical CY23 P/E (c.16x) and in line on longer distance CY24/25 EV/EBIT multiples. Longer term, per reverse-DCF, Inditex requires less margin expansion. We think shorter-term momentum and cashflow valuations...
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After having long been adidas’ largest growth driver, China is still a huge thorn in its side. What had begun with the “cotton crisis” last April was exacerbated with strict lockdowns across China since March. Unfortunately, adidas’ woes there are completely overshadowing accelerating trends in the remaining 80% of its business driven by a strong execution of the “Own the Game” playbook and a resilient consumer sentiment. We decrease our TP to EUR305 as a result FY22-23 estimate adjustments (-3% on avg.) and DCF assumptions.
It''s all about how well they play in the second half Adidas reported a Q1 beat and announced a strategic partnership with Foot Locker. However, it lowered full year underlying guidance, albeit consensus EPS is unlikely to move due to currency and tax. The concern investors have is that it still leaves Adidas needing a strong second half, and the uncertain consumer outlook might not support this acceleration. We leave our below-consensus forecasts largely unchanged, with improving brand momentum the main opportunity for a re-rating. A Q1 beat despite a miss in China Although rather lost in the noise of full year guidance, Q1 beat expectations, c.2% ahead on sales and 10% on profits and EPS. Like peer Puma, its performance was very skewed to a better performance in Western markets and a much weaker than expected performance in Asia. Adidas also announced a strategic partnership with Foot Locker which to us looks like a good platform to relaunch its US basketball strategy in H2 as well as more broadly increasing Adidas'' distribution. How much of a leap of faith is new guidance? Management adjusted its full year net income guidance to the lower end of its EUR 1.8-1.9bn range. Consensus was already at the lower end, but the underlying profit margin guidance was lowered, compensated by more favourable currency and lower tax. The guidance assumes 3-year growth accelerates from flattish in H1 to over +20% in H2. There are logical drivers to this improvement but clearly the consumer outlook presents risks. We model more cautiously with our H2 sales growth forecast largely unchanged at +15%. See Figures 3 and 4 inside. No change to the gameplan: forecasts unchanged Our full year net income forecasts were already below management''s guidance and so we leave our estimates broadly unchanged today. These still require an acceleration of growth in H2, driven by fewer supply constraints, recovery in Asia, continued momentum in Western markets, new...
ADIDAS - Conviction BUY Top Picks | EUR335 Despite good Q1 results, adidas slightly less optimistic for FY22 due to China Q1 sales performance a touch better despite China’s quagmire Q1 margins topped expectations FY22 outlook revised down because of China but already anticipated by the CS
Expecting another tough work out through earnings season The sporting brands have had it tough: inventory shortages, geopolitical challenges in China now compounded by lockdowns, rising costs that require price hikes, and an uncertain consumer backdrop. The distributors face concerns around disintermediation as the brands move Direct to Consumer. Here we tackle the 10 tough questions investors pose for Adidas, JD Sports and Puma. We think investors will need to remain patient but, when the dust settles, we see value in the sector. Adidas (+): Q1 due on 6 May The key debate for Adidas is its brand heat. So far we see no momentum in social media data, but think that its product pipeline will make a difference in H2 and 2023. China remains its headache-market, but some of its self-help actions should start to help. These could drive a rerating: Adidas trades on a c.5-year low multiple, implying long term margins below management targets. JD Sports (+): FY due in May The key debate will be difficult to lay to rest: the risk of disintermediation by Nike as it shifts Direct to Consumer. But reassuringly, we find that JD''s access to Nike products, including exclusives, remains industry-leading. With the stock trading on historically low P/E multiples, despite having 13% of its market cap in cash, we expect the upcoming results to reassure and drive a re-rating. Puma (+): Q1 due on 27 April It has been a de-rating story in 2022, in part bond-yield driven. Its brand heat looks good, it has low(ish) exposure to China, and it should capitalise in the US on strong relationships with distributors. It has rarely traded on such low multiples and is pricing in virtually no margin expansion. Are we at the point of maximum pain? Trough multiples, but there are challenges ahead. We trim Adidas and Puma estimates by a further 2% to reflect China''s Covid lockdowns and we sit below consensus. But we favour these sports stocks relative to the rest of our...
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FY22 sales guidance (+11-13% FX-n) decomposed North America: ongoing strong underlying demand and no signs of a slowdown China: reasonable optimism as ADS progresses in its action plan
Adidas announced a reassuring outlook including the impact related to the Russia/CIS risk despite the consensus-missing Q4 21 performance. The challenging trading environment in Greater China, the lingering COVID-19-related restrictions and industry-wide supply-chain disruptions have weighed on the group’s year-end performance. However, the group is confident that the strong full-price sales, the progressively eased supply-chain disruptions and the gradually normalised trading environment in China will result in another year of double-digit growth and good profitability.
ADIDAS - Conviction BUY Top Picks | EUR335 Ambitious FY22 outlook should overshadow uninspiring Q4 numbers Q4 FX-n sales decline (-3%) a touch below CS (-1%e) mainly caused by China and Asia-Pacific Headwinds continued to dent Q4 margins Ambitious FY22 outlook despite geopolitical and economical risks
ADIDAS - Conviction BUY Top Picks | EUR335 New EUR1.5bn share buyback program as the RBK sale is completed RBK sale of up to EUR2.1bn: cash proceeds are returned to shareholders Appealing shareholder return policy over 2022-25 Hot topics at the agenda of FY21 results due next week (9th March)
ADIDAS - Conviction BUY Top Picks | EUR335(+32%) How adidas will reassure on its margin outlook The power of pricing: near-term and MT levers DTC to account for c.50% of revenue by 2025 from 36%e in 2021 Digital transformation to drive margins China now remains the sole major question mark for ADS and its “Western” peers FY22 margin outlook: what to expect in March?
ADIDAS - CONVICTION BUY TOP PICKS | EUR330(+12%) All eyes are now turning to China’s pace of recovery EUR1bn net sales impact expected over Q4 2021 and Q1 2022 China: how serious is the situation in China? China: action plan to rapidly revitalize momentum FY21 sales target: ADS aims for a 17-18% FX-n growth Upbeat FY22 outlook despite lingering drags FY22 estimates cut by 2% but MT unchanged
ADIDAS - CONVICTION BUY TOP PICKS | EUR330(+11%) Reassuring FY21 outlook given harmful supply chain issues Q3 sales in line despite greater impacts from supply chain issues Resilient EMEA and North America EBIT is 4% above expectations despite a GM miss FY21 sales and margin outlook broadly unchanged
Luxury & Fashion Q4 Top Picks: adidas, LVMH Sector view: China uncertainties and supply chain issues Q4: how are companies expected to perform in this context Our Q4 Top Picks: LVMH and adidas
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Previewing Adidas and Puma, following Nike results Ahead of Q3 results from Puma (27 October) and Adidas (10 November) we cut forecasts to reflect the impact of inventory shortages caused by Vietnam lockdowns and weaker demand in China due to Covid confinement. These issues were flagged and somewhat quantified by Nike last week. We are bulls of the sporting goods sector but the impact of inventory shortages will likely spill into H1 2022 and increase the near-term uncertainty for the stocks. Vietnam lockdowns still the main issue on the horizon... Vietnam is a key manufacturing hub for Adidas and Puma, as we show in Figure 1 inside. The lockdown across South Vietnam since end-July is well known and is likely to impact inventory levels in 4Q21 and 1H22. The surprise from Nike''s results was that supply congestion affected the last quarter more than anticipated, with Asia to North America transit taking 80 days rather than 40 days pre-pandemic. As well as lost sales, there is also a gross margin impact of re-sourcing inventory from other countries and using air freight. This should somewhat be mitigated by operating cost savings. ...but China is also taking longer to recover The brands are currently facing three issues in China: the Xinjiang cotton backlash, albeit fading, we think; Covid-related confinement of the population; and supply constraints. Nike said the supply shortages would impact Asia earlier than other regions as the region has less in-transit inventory. Widespread industry commentary suggests that western brands had recovered somewhat in July, to around prior year levels of sales and footfall, only for Covid restrictions to impact August severely. Expect consensus to fall, still fans of the long-term We lower our Adidas and Puma FY 2021 forecasts, which were already below consensus for both, by mid-single-digits, and our FY 2022 forecasts by low single-digits, assuming some spill-over effects of inventory shortages in early...
We kick off our inaugural State of the States survey and are pleased to share new insights into how the sportswear and sports experience consumer is looking at the playing field today. We surveyed over 5,000 consumers across the United States yielding over one million unique datapoints. The verdict: initially a COVID winner, we view the space as a secular champion. Themes like casualization, in-home fitness, and the great outdoors look well-entrenched as key facets of the new-normal. Please feel free to reach out for the raw survey data. We reiterate our bullish view on Deckers (+) and Peloton (+). We also provide insights on Nike (+) and adidas (+) in the context of emerging brands like ON, Allbirds, Veja, and VF Corp''s Altra.
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In our industry note Good Morning Vietnam published June 8th we outlined that Vietnam Covid could be a risk. Today, Vietnam Covid is a reality and by utilizing Nike''s Manufacturing Map, we quantify Nike''s South Vietnam manufacturing exposure at 34% of total annual production. With the South Vietnamese factories in lockdown for two months at a min. (mid-July to mid-Sep), we reduce our FY22 revs by 5.7%. We maintain FY23 ests as the situation still ultimately appears temporary. What is Nike''s sourcing exposure to South Vietnam? In the latest Nike 10K released in July, it calls out that 51% and 30% of Nike''s global footwear and global apparel supply chain comes from Vietnam, respectively. We utilized Nike''s Manufacturing Map which is updated periodically to provide transparency on Nike''s supply chain. Vietnam is made of 58 provinces and five key municipalities like Hanoi and Ho Chi Minh. Most of the population is concentrated around Hanoi and Ho Chi Minh. We mapped out the addresses for the 119 Vietnamese factories utilized by Nike across its supply chain. We calculate that 37%, 18% and 18% of Nike''s footwear, apparel and accessory production, respectively comes from South Vietnamese provinces like Dong Nai. We show in fig 6 that 34% of Nike''s overall FY21 revenues stem from South Vietnam - the highest in our coverage universe. What is the financial impact to FY22 guidance? Adidas quantified the Vietnam impact at EUR c. 250m with the assumption that the lockdowns end in mid-August. We don''t know adidas'' precise exposure to South Vietnam but note adidas exposure to Vietnam (28%) is less than Nike. We take Nike''s 34% exposure to Vietnam and multiply that by 16.6% (2 months out of 12) to get a 5.7% hit to the top line. We assume the most impact will be in fiscal 2Q22 and 3Q22 and lower our bottom line estimates as well. We maintain our estimates for the out years assuming that this is a temporary impact that lasts a quarter to two. Are...
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ADIDAS - Conviction BUY | EUR340(+11%) Reebok is sold to Authentic Brands Group Successful sale to ABG for EUR2.1bn More lows than highs during ADS’ helm ABG has a very particular business model RBK sales will have a positive impact on shareholder return
ADIDAS - Conviction BUY | EUR340 VS. EUR330 (+8%) A more challenging hurdles race but adidas deals with it so far Greater China: promising exit rates Covid supply chains issues could cost up to EUR500m in 2021 H2 outlook explained FY21-22 EPS increased by c.2% - Positive stance reiterated
Adidas upgraded its FY21 guidance (again) on the back of the strong accelerations in Europe and North America in Q2 21. On the back of good top-line momentum, the ongoing supply chain challenges and normalised marketing spending will put pressure on the margin progression. The sales contraction of 16% in Greater China was worse than weexpected, however, the trading environment has started to improve, and the group continues to expect strong growth in the country for FY21.
ADIDAS - Conviction BUY | EUR330(+2%) Q2 numbers top expectations and more upbeat FY21 outlook Q2 sales: 2% beat vs. CS forecasts Strong momentum in EMEA and North America Strong operating leverage: 14% beat at the EBIT level More upbeat FY21 outlook already anticipated by CS
Luxury & Fashion NIKE: Q4 FY21 and FY22 numbers top expectations on upbeat U.S. demand Q4: significant sales beat of 11.5%... … and sharp margin rebound FY22 outlook more upbeat than the Street Upbeat FY25 targets
ADIDAS - Conviction BUY | EUR330(+28%) ADS does well in the 2021 hurdles China : small hiccups early April but trends have already improved Q2 sales to rebound 50% at reach 2019 levels Reiterated GM outlook confirm healthy inventory levels Slight upward adjustments to our FY21 estimates
Q1 20% ahead of consensus Adidas beat Q1 consensus EBIT expectations by 20% and its guidance for both Q2 and the full year were more bullish than the market had expected. With the overhang from China political tensions seemingly sufficiently reflected in guidance, inventories clean and momentum in product ranges, we think the bull case is even clearer now. We reiterate our Outperform rating. Outlook for Q2 better than feared Management''s guidance for Q2 revenue growth of c.+50%, was more bullish than consensus (+38%). We had cut our Q2 forecast from +50% to +42% on the back of the China political tensions but move these back up following today''s reassuring message. On the call the company did not provide guidance for China in Q2 but noted that there had been a ''slow but steady'' improvement in traffic and that its brand communication had increased since mid-April. 2021 sales guidance upgraded Coming into the results, investors were worried that management might lower guidance on the back of China issues. Management reiterated its full year net income guidance (EUR 1.25bn - 1.45bn) with the bottom end of the range looking increasingly unlikely. It raised full year cFX sales guidance to ''high teens'' from ''mid/high teens'', but held back from raising profit guidance as it assesses the impact of external supply chain challenges and plans to increase marketing spend. Forecasts unchanged with H2 upside risk We leave our net income forecasts for the year largely unchanged, hence reflect more conservative profit forecasts in H2. The bear case has been predicated on weak brand momentum and high inventories and, more recently, the situation in China. We think the combination of an improving product pipeline, structural tail winds and attractive valuation should drive a re-rating. We maintain our Outperform rating and recently rated it as an ESG Leader.
Adidas slightly upgraded its guidance for FY21 after a better-than-expected first quarter. The group has experienced healthy growth across all markets despite the prolonged lockdowns in some markets, highlighting the strong 156% sales growth in Greater China. The strong growth in China and the group’s very encouraging guidance for Q2 21 have confirmed our view on the “boycott on Xinjiang cotton matter”. We believe that smaller, easily replaceable brands will be affected more than well-positioned big brands in this storm.
ADIDAS - Conviction BUY | EUR330(+27%) A strong start to the year that leads to a more upbeat FY21 sales outlook Q1 sales topped CS forecasts by c.5% Robust momentum in Greater China (+156%) In-line GM performance but 14% beat at EBIT level ADS raises FY21 sales guidance, Q2 growth to be “around 50%”
ADIDAS - Conviction BUY | EUR330 VS. EUR325 (+18%) Q1 2021 Results preview: Strong top line rebound but brace for FX swings Q1 2021 sales to exceed Q1 2019 levels excl. FX headwind… … that will also play negatively on H1 margins Attractive entry points despite the lingering lockdown risk in Europe
As we field c.30 calls regarding Xinjiang implications for Nike and Adidas, we take a deeper look at the NT and LT considerations. NT, we believe the impact to sales will be transitory and be limited to a quarter as we look at 5 cases for precedence. We quantify the impact below. LT, input cost inflation could persist but we think Nike and Adidas can navigate the situation better than others. Last week was the tipping point for Xinjiang We''ve been monitoring the Xinjiang situation since January (see note). Last Monday was a tipping point when Western powers sanctioned Chinese officials. China retaliated with sanctions against Europe last week and over the weekend China sanctioned the U.S. and Canada (see link). In Zinged by Xinjiang we provided a quick overview of the escalation since January. HandM and Nike were singled out by social media in China for taking a stance on Xinjiang. Several celebrities cut ties with Nike and Adidas, albeit only HandM has been removed from e-commerce platforms. How serious is this for Nike and Adidas? The situation could yet escalate further with the sanctions over the weekend. We believe it will prove transitory for a quarter as we examine 5 cases of precedence. If Nike''s China rev growth slows from 40% to 20% or 0%, this would amount to $260m-$600m in lost revs and EPS impact of $0.04 to $0.08. We tweak 4Q by $0.04. For Adidas, we cut 2021 EPS by 4%. Anta and Li Ning were both up Thursday and Friday. Another barometer is Baozun (US-BZUN) as it is the key e-com logistics supplier for Western brands. Nike is about 26% of sales, which we discuss more in this report, and the stock was down 18% last week. Where do we go from here? We believe the near term noise will be transitory as it is unlikely that Chinese consumers would want to cut off Western brands. The bigger risk is on the cotton supply chain as Xinjiang represents 20% of the world''s cotton, which we discuss in our January note. The U.S. embargoed...
ADIDAS - Conviction BUY | EUR325(+15%) adidas is raising the bar after a convincing CMD “Own the Game”: what the 2025 finish line looks like Elevating credibility through a refined segmentation Enhanced Experience with DTC, digital and membership Sustainability: a key differentiating factor for ADS Cash return to shareholders of EUR8-9bn thanks to margin and FCF improvement Convincing CMD showing that ADS is well-positioned to outperform the industry
''Own the Game'' strategy for 2025 Yesterday''s capital markets day set out Adidas'' ambition to take market share in all key geographies and balance this growth with attractive profit growth and cash distributions. In our view the 2025 guidance is conservative, and we sit above the implied net income range. That said, we bring near term forecasts closer to guidance, reflecting the planned exit of Reebok. The strategy is clear and the business has hit the ground running in 2021. We maintain our Outperform rating. Strategy 2025 We had felt that the two key things Adidas had to do were showcase its innovation and guide to a 2025 margin that stretched beyond consensus, and we think both of these were achieved. The new strategy pivots Adidas to being a direct-to-consumer led organisation by 2025: aiming for 50% of sales from DTC; doubling online sales to represent 25-32% of total sales; and growing its membership base from 150m to 500m consumers. Key financial guidance from a 2021 baseline out to 2025 was constant currency sales CAGR of 8-10%, net income CAGR of 16-18%, 2025 EBIT margins of 12-14%, and EUR 8-9bn of cumulative cash distributed to shareholders. Particularly new things in the strategy announcement today were the narrowed focus on five key categories (Football, Running, Training, Outdoor; and Lifestyle to be segmented between sportswear and an elevated Originals sub-brand) and a doubled-down focus on key regions (China, N America and EMEA) and twelve key cities. 2021 outlook Adidas has started the year well, with double-digit growth expected in Q1 despite lockdowns and mid-high teens sales growth expected for the year. Consensus sits at the top of the guided range and may not move much given the expectation that Adidas would guide conservatively. We have brought our high-end forecasts down, predominantly reflecting cost guidance deriving from the planned Reebok disposal. However our DCF-driven price target is unchanged at EUR 325.
ADIDAS - Conviction BUY | EUR325(+9%) adidas says goodbye to Reebok and plays solo Divestiture process for RBK initiated 80-90bp accretive impact on our 2025e EBIT forecast Dividend and share buyback programme to resume this year CMD: all eyes on margin improvement and sustainability
ADIDAS - Conviction BUY | EUR325(+17%) Succeed the backswing in 2021 to accelerate in 2022 onwards Resilient trends towards the end of the year… … but the Covid-19 pandemic is very present 2021 to be a springboard year followed by an acceleration phase Despite these near-term adjustments, ADS still offers one of the strongest rebounds in sales & earnings
The beautiful game: good prospects for the sporting brands We remain fans of the sporting goods sector. The structural attractiveness of the sector has been accelerated by Covid and we believe the big brands exited 2020 with accelerating sales momentum and quite clean inventories. For 2021 we are generally ahead of consensus and, while we can''t be sure the earnings recovery will be smooth, we are confident that medium term margin expectations for the sector will rise over time as the themes play out. Hence we expect there to be a number of winners this year, and promote Adidas to join our Nike and Puma Outperform ratings. Covid: what doesn''t defeat you makes you stronger Covid-19 hit sales and profits hard in 2020 and also demonstrated that the long wholesale cycle can cause substantial cash burn when markets are dislocated. Having got through this tough work-out, the industry is left stronger with consumers more engaged with health and sports, and a more profitable channel mix of direct-to-consumer (DTC) and digital. 2021: what to watch We highlight four themes for 2021: (1) the demand bounce-back, fuelled by comps, sports events and a structurally more engaged consumer: we set out revenue forecasts by month; (2) concentration of market share, driven by structural changes to the industry and brand heat dynamics: we see some green shoots of Adidas improving; (3) accelerated channel shift, as brands gain from the DTC and online shifts: we think this boosts long term margin prospects and several brands could achieve personal bests by 2022/3; (4) sustainability, which is sprinting up the agenda. Top picks for 2021: we''re enthusiastic supporters hoping to see several winning teams We have reviewed forecasts and target prices, including lowering the market risk premium we use in our DCFs. We see the most share price upside at Nike and Puma, but also raise Adidas to Outperform: we think it could play well in the first half. The stock has...
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ADIDAS - Conviction BUY | EUR325(+9%) Managing expectations in an uncertain world and ahead of the CMD is… challenging! Q3 sales in line but EBIT ahead of expectations Q4 outlook: ADS deliberately cautious China back to growth in Q4 Normalisation of inventory levels progressing according to plan Share buyback programme to dividend payment to resume next year FY20 estimates nudged down by 2%, MT stance confirmed
Q3 even better than fans hoped for Adidas'' Q3 EBIT was 10% higher than consensus and over 20% ahead of the mid-point of management''s August guidance. This demonstrates how the environment had evolved through the quarter, despite a slowdown in China. With such a strong performance, the company could afford to be prudent in its sell-in to the wholesale channel, and this should support future quarters. Nevertheless, management''s Q4 guidance was cautious due to recent lockdown measures in Europe, and this mostly offsets the beat in Q3. Q3 results: operating margins back into double-digits Q3 EBIT of EUR 794m was 10% ahead of consensus (EUR 720m) and represented an operating margin of 13.3%, just -70bps yoy despite sharply negative currencies and continued effects of the pandemic. Notably, direct to consumer represented 40% of sales in the first nine months (versus 30% in the prior year), and we estimate that close to half of this was from online. Q4 outlook: guidance disappoints Management has seen a good start in October and is confident that China can return to growth in Q4. However, the European lockdowns could lead to low- or mid-single-digit declines in constant currency sales. We are a little more optimistic (-2%) and factor in EBIT of EUR 208m, roughly at the top of management''s guided EUR 100-200m range. More importantly, however, inventories look likely to be clean by year end, management remains bullish about its product pipeline, and will set out its five year strategy in March with DTC boosting the margin potential. Valuation: on a par with peers On CY22 P/E Adidas trades on 26.8x (at EUR 281.5), similar to Puma (28.9x). We nudge up our target price, reflecting increased optimism about margin potential, but maintain our Neutral rating. We set out 15 questions for management inside.
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