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...
