Adidas Confirms First Quarter Earnings Beat
Adidas‘ new era under its new boss appears to be proceeding at pace, as the company revealed first quarter results that beat expectations. Adidas sales grew 8 percent in currency neutral terms to 5.46 billion euros over the first three months of the year.
During a press conference on Tuesday morning discussing the results, Adidas chief executive officer Bjorn Gulden explained why he thought the turnaround seemed to be happening faster than expected. Since Gulden took the top job at the beginning of 2023, he has spoken frequently about how he planned to bring the company back to growth by 2026. In 2023, the German sportswear giant reported its first annual loss in three decades following the termination of its relationship with Ye, formerly known as Kanye West.
“Everything we can control has improved,” Gulden said. Too-high inventory levels have fallen by 1.2 billion euros (20 percent, in currency neutral terms) since the same period last year, he explained. Adidas’ marketing spend also rose by 56 million euros over the first quarter and there were strong product launches, he continued. Additionally, there’s been more focus on localization, including collaborations with local actors and specific product launches for specific regions.
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Gulden said Adidas’ lifestyle products, especially Originals footwear, drove growth. Footwear sales, which make up just under two-thirds of all Adidas sales, rose 13 percent on a constant currency basis to 3.24 billion euros.
The company had been lucky, the executive pointed out, because of the current fashion trend for what are known as “terrace shoes,” so called because British soccer fans would wear them onto the terraces of stadiums to watch games.
“We are proud but also surprised about how quickly the brand has been accepted again by the kids on the street,” Gulden said. “Our goal now is to manage the franchises, and phase different products in and out to avoid discounting again. To be very honest, you couldn’t ask for more luck with timing,” he continued. “And this [trend] is not because of anything I have done. These products existed before I came and this is just showcasing that everything was not as bad as people wanted [to think it was at Adidas].”
Looking more deeply into product categories, Gulden noted that high-end performance and lifestyle looks were doing very well while more commercial styles remained more or less static. The company now needs to turn those high-end successes into more mid-market opportunities, he said.
Apparel Sales Rise More Slowly
Adidas apparel sales, which make up 35 percent of all sales, didn’t move quite as quickly in Q1 and increased 2 percent to 1.88 billion euros.
The company said its apparel sector, which has been stagnant for some time, was slower due to high inventory levels, especially in North America. However Gulden said that here, too, they were starting to see a more positive trend. Income from accessories fell slightly, decreasing by 1 percent to 328 million euros.
After over a year dealing with the demise of the very profitable Yeezy line, originally a collaboration with musician West, this turbulent chapter now seems to be coming to a close. In Q1, Adidas made 150 million euros selling left-over Yeezy stock. Now the company still has around 200 million euros worth of it left but plans to sell it at cost over the next three quarters. And, as they have been every quarter since the 2022 breakup with West, Adidas executives were keen to emphasize that their brand is just as strong without Yeezy.
“If you take Yeezy out, we are still growing the core business at 5 percent ahead of what we had originally planned,” Gulden pointed out.
In terms of sales territories, all of Adidas’ markets saw growth except North America, where sales fell 3.6 percent at constant exchange to 1.12 billion euros from 1.18 billion in the previous year.
Adidas has been battling high inventory levels, low consumer demand, and overstocked stores in North America for some time, and has been taking “a conservative approach” to selling into the market.
“North America is lagging six to nine months behind,” Gulden conceded. “We know the North American business is more difficult to turn around. But what is good, is that our inventory there is down 40 percent, therefore we can be fresher and more commercial there in the next quarters.”
Better Outlook in North America
Inventory in North America is no longer worrying him, he added, and the brand has a renewed focus on U.S. sports like basketball. Gulden predicted that North America would return to growth in the second half of this year.
Elsewhere, the news was far better. In Greater China, sales grew by 7.8 percent to 897 million euros. In Latin America, Japan/South Korea and emerging markets, sales rose 17.6 percent, 7.5 percent, and 16.8 percent, respectively. Together, those three categories brought Adidas another 1.66 billion euros in first quarter sales.
In Europe, the company’s biggest market, sales rose 13.8 percent at constant exchange to 1.73 billion euros in the first quarter. Gulden said Adidas was ready for various European sporting events, including the Olympics and soccer tournaments.
During the press conference, Gulden also tackled a topic that has been highly sensitive in Germany, so sensitive in fact, that the country’s most senior politicians have criticized it: From 2027, Nike will be outfitting Germany’s national football team, not Adidas.
Gulden was frank. The end of the 70-year partnership was about money and Nike simply offered more. “I am not annoyed at all,” he told journalists. “We are a company that needs to balance cost and revenue. The price that is quoted in the press that our competitor paid is not something that we will pay.”
Adidas’ earnings before income and taxes also rose, increasing to 554 million euros from 344 million euros over the corresponding period last year.
All of which made for a positive outlook. In mid-April, when releasing preliminary Q1 results, the German brand had already lifted guidance for the year. Adidas now expects currency-neutral revenues to rise at a mid to high single-digit rate over the course of the year. Previously it only expected revenue to increase at a mid-single-digit rate.
“We got inventory down much quicker than people expected, we got a growth margin which no one thought we could, and retailers are making money with us again,” a satisfied Gulden said. “All these things happened in a very short period of time and of course we can still improve. But you can’t do everything at once,” he concluded.
