Adidas Shares (ADS.DE) Trending in The Right Direction After Solid Q2 Results

Adidas reported positive preliminary results for the second quarter of 2024 after the close on Tuesday, exceeding expectations and raising its full-year guidance.

The positive results have lifted Adidas's shares (ADS) in early Wednesday trading, with the stock currently up over 4% from Tuesday's close.

Currency-neutral revenue grew 11% year-over-year, with total revenue reaching €5.82 billion. Excluding Yeezy sales, this growth jumps to 16%.

The sportswear company's gross margin remained stable, reaching 50.8% in Q2, down slightly from 50.9% in the same period last year, despite a smaller Yeezy business impacting the year-on-year comparison. However, strong sales across categories, reduced discounting, and lower sourcing costs boosted the underlying Adidas gross margin.

Fueled by this strong performance, Adidas increased its full-year guidance. They now expect currency-neutral revenue to grow at a high-single-digit rate in 2024, up from their previous mid-to-high-single-digit forecast. Operating profit is also projected to reach €1 billion, significantly higher than the earlier estimate of €700 million.

While the remaining Yeezy inventory is expected to generate additional sales of €150 million, it won't contribute further profit. Adidas anticipates ongoing challenges from currency effects impacting profitability throughout 2024.

Adidas did warn that it continues to expect unfavorable currency effects to “weigh significantly on the company’s profitability this year,” negatively impacting reported revenues and gross margin development in 2024.

Following the report, analysts at Wedbush raised the firm's price target on Adidas to EUR 248 from EUR 233, keeping a Neutral rating on the shares. The firm said Adidas continues to trend in the right direction after what it described as another “solid” preannouncement.

Wedbush also continues to believe that brand heat is extremely strong right now. However, they acknowledge that a lot of the good news is already priced in.