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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 C
Companies: adidas AG
AlphaValue
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 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-position
The group has published better-than-expected figures for Q3 20. The encouraging improvement in Russia/CIS, Europe, and North America has been slightly offset by the sales contraction in the franchise in China. The relatively less exposure to North America and the footwear business make the group still lag behind its industry peer. The updated conditional outlook for FY 20 was broadly in line with current consensus and below our estimates, showing an uncertain year-end trading environment.
Companies: ADS ADS ADSN ADSEUR ADS1 1ADS ADS ADDDF ADS ADIDAS
The group has reported better-than-expected sales and gross margin in Q2 20. The higher exposure to Asia, notably to China, and accelerated growth in e-commerce has not only limited the top-line contraction but also led the group to give an encouraging expectation for Q3 20. However, the piling up of inventory has weighed on the margin, which may result in heavy price-discounting in the after-season, thus putting pressure on the margin for the rest of the year.
… but this excludes the COVID-19 impact. This virus has reduced Chinese revenue by 80% from 25 January to the end of February and management expects this to have a €0.4-0.5bn negative impact on EBIT in APAC/Greater China in Q1. Up to now, the company does not see any (severe) sourcing problems, but this might eventually impact revenue in other parts of the world.
The last time the company‘s quarterly EBIT number fell was in 2014. Ever since, Adidas has achieved phenomenal profit growth. This has clearly not been the case in the most recent quarter.
The group’s Q3 and H1 bottom lines benefited from gains from discontinued operations (€70m and €72m, respectively) and from much-lower-than-expected tax rates, down by 3.2pp to 25.6% and by 2.7pp to 25.5%. Consequently, net earnings were higher than anticipated. The outlook is somewhat uncertain and depends on potentially more US import duties for Chinese goods.
After 16% in 2017 and 8% in 2018, currency adjusted revenue growth moderated to 4% in Q1 19. Sales of the Adidas brand were up by 5% but Reebok sales fell by 6%. Nevertheless, the profit margin improvement was stronger than expected.
Adidas increased its turnover by 3.3% to €21.9bn (+8% currency-adjusted) while EBIT was up by 14% to €2.37bn and net earnings by 55% to €1.70bn. These numbers are very much in line with consensus expectations while our profit projections were slightly higher. Management proposes a dividend of €3.35 compared to our projected €3.30 vs. the previous year’s €2.60.
The group’s turnover increased by 3.2% to €16.7bn through to September and, as the gross margin continued improving, EBIT was up by 16% to €2.24bn and net earnings by 40% to €1.59bn. We had expected the following respective numbers: €16.6bn, €2.21bn, and €1.51bn, i.e. the company delivered slightly more.
The current contract expired in 2022 and the two have now extended it to 2026. According to media speculations, Adidas is willing to continue to pay €50m annually to the German Football Association, an amount that is similar to what it pays to the French Association. According to these sources, Nike is paying €40m to the English, €35m to the Spanish, and €34m to the Brazilian Association. DFB has come under pressure after the disastrous performance of the German team at the Russian World Champi
The group’s revenue numbers (+4.4% to €5.26bn in Q2 and +3.1% to €10.8bn in H1) fell short of our expectations, but all profit numbers were higher. H1 EBIT was up by 17% to €1.34bn and net income from continuing operations by 19% to €960m. Management continues expecting full-year revenue to increase by some 10% before FX changes and the gross margin to improve by 0.3pp to 50.7%. The latter is, in our opinion, too cautious as the margin was up by 2.2pp in the last quarter and by 1.8pp in H1.
At a glance, the 8pp gap between currency-adjusted revenue growth of 10% and the reported growth rate of 2% looks like a threat. However, Adidas and its peers are sourcing almost all of their products in Asia and purchase prices are typically denominated in US dollars. As a large share of their revenue is generated in countries with strong currencies (e.g. Western Europe, almost 30%), the gross margin has increased considerably.
Adidas delivered good 2017 numbers all the way down to pre-tax earnings and it announced a share buy-back programme going all the way through to May 2021. Net earnings were negatively impacted by the US income tax reform and a higher than expected loss from the disposal of TaylorMade and CCM Hockey. Consequently, management’s dividend proposal of €2.60 is lower than our anticipated €2.75.
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