Adidas AG (DE: $ADS) (OTC: $ADDYY) is the largest sportswear company in Europe and a close second to Nike in the world. Based in Herzogenaurach, Bavaria, Germany, it was started by the Rudolf brothers in 1924.
On Wednesday, April 17, Adidas announced better-than-forecast preliminary Q1 fiscal 2024 results to a positive market reception that saw shares surge over 8%.
Adidas Preliminary Q1 Results
The shoe giant reported 4% growth in revenue, amounting to €5.5 billion as compared to €5.27 billion in the same quarter in 2023. Its revenue growth was attributed to the latest Yeezy drops, surpassing analyst forecasts of €5.4 billion.
Furthermore, the operating profit came in at €336 million, beating analyst expectations of €226 million. Even more significant is that the company reported its first annual loss in over 30 years last month. Since cutting ties with Kanye in October 2022 and suspending the sale of its profitable Yeezy line of sneakers, the company has been battling to right the ship.
The company reported sales of an additional €150 million in Yeezy products for the previous quarter, generating an operating profit of approximately €50 million. However, it does not foresee any additional profits from the remaining Yeezy inventory, which is estimated to be around €200 million. Moreover, the company anticipates an unfavorable FX impact on revenue growth and gross margin in 2024.
Revised Forecast
Due to the better-than-forecasted performance, the sportswear giant now forecasts an Fx-neutral revenue increase in the mid-to-high digits compared to the previous mid-single-digit increase. It now expects an operating profit of around €700 million compared to the previous forecast of €500 million.
Analyst Comments
An analyst of Telsey Advisory Group, Cristina Fernandez, said in a note on Wednesday, “The positive 1Q24 result shows Adidas has turned the corner with accelerating brand heat and cleaner inventory, which has allowed it to reduce the level of discounting in the marketplace.”
She forecasted that the stock would hit between €225 and €205 and stick to the Market Perform rating.
Another analyst of RBC, Piral Dadhania, said, “The market clearly does not believe the EBIT guide, which to us appears to be unrealistic, and overly conservative.”
Overall, analysts give Adidas stock a strong buy rating. They forecast a broad range from the stock, with a high of $231.70 and a low of $104.20. Based on the last closing price, their average target of $191.05 is a 62.97% upside.
Adidas Stock Performance
At the close of trading, Adidas shares traded on the German stock exchange (ADS) saw an 8.64% increase to €220 on Wednesday. American depositary receipts listed on the U.S. market (ADDYY) also rose by 5.60% to $117.23.
ADS shares have gained 20.73% this year, while ADDYY shares are up 17.76%. The market cap is $39.281 billion, with a 24-hour trading volume of 65,332 for ADDYY shares and 1,256,506 for ADS shares.
Should You Invest in $ADDY?
After suffering its first annual loss in over 30 years, Adidas is back to its winning ways, with an upbeat forecast, and Yeezy drops fueling revenue growth. With the Olympics, EURO 24, Paralympics, and Copa sporting events this year, the company could see a further boost in sales from partnerships. As such, analysts’ strong buy rating accurately represents the stock’s medium-term performance.
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