Brand momentum cited by Adidas in mid-July when the company released preliminary Q2 results was confirmed today with the formal release of Q2 figures. Citing improved global sentiment for its brand, improved product sell-out numbers for both lifestyle and performance products and a year-over-year sales increase within its apparel segment, the group reported sales growth of 8.9 percent to €5.82 billion (+11% currency neutral) for the period ended June 30.
Operating income rose by 97 percent to €346 million from €176 million in the year-ago period, and net income was up 117 percent to €206 million from €95 million. Gross margin declined by 10 basis points to 50.8 percent from 50.9 percent. Excluding the impact from Yeezy, the Q2 gross margin improved by 150 basis points to 50.5 percent from 49.0 percent due to better sell-through rates, lower freight and product costs and less discounting. Inventories were down by 18 percent year-over-year at €4.54 billion versus €5.54 billion.
| Adidas - Income | |||
|---|---|---|---|
| 2024 | 2023 | Change | |
| Quarter ended June 30 (€ million) | |||
| Net sales | 5,822 | 5,343 | 9.0% |
| Cost of sales | 2,863 | 2,625 | 9.1% |
| Gross profit | 2,959 | 2,719 | 8.8% |
| Royalty and commission income | 19 | 21 | -9.5% |
| Other operating income | 6 | 18 | -66.7% |
| Other operating expenses | 2,637 | 2,582 | 2.1% |
| Operating profit | 346 | 176 | 96.6% |
| Financial income | 20 | 19 | 5.3% |
| Financial expenses | 62 | 71 | -12.7% |
| Pre-tax | 304 | 123 | 147.2% |
| Tax | 93 | 27 | 244.4% |
| Net income from continuing operations | 211 | 96 | 119.8% |
| Loss from discontinued operations, net of tax | 6 | 1 | 500.0% |
| Net income | 206 | 95 | 116.8% |
| Diluted EPS from continuing operations | 1.09 | 0.48 | 127.1% |
| Diluted EPS from continuing and discontinued operations | 1.06 | 0.47 | 125.5% |
| Half ended June 30 (€ million) | |||
| Net sales | 11,280 | 10,617 | 6.2% |
| Cost of sales | 5,525 | 5,535 | -0.2% |
| Gross profit | 5,755 | 5,082 | 13.2% |
| Royalty and commission income | 35 | 46 | -23.9% |
| Other operating income | 8 | 57 | -86.0% |
| Other operating expenses | 5,115 | 4,949 | 3.4% |
| Operating profit | 682 | 236 | 189.0% |
| Financial income | 43 | 30 | 43.3% |
| Financial expenses | 177 | 111 | 59.5% |
| Pre-tax | 549 | 155 | 254.2% |
| Tax | 166 | 82 | 102.4% |
| Net income from continuing operations | 382 | 73 | 423.3% |
| Loss from discontinued operations, net of tax | 7 | 7 | 0.0% |
| Net income | 376 | 65 | 478.5% |
| Diluted EPS from continuing operations | 2.05 | 0.29 | 606.9% |
| Diluted EPS from continuing and discontinued operations | 2.02 | 0.25 | 708.0% |
| Source: Adidas | |||
In a statement, CEO Bjørn Gulden confirmed that Adidas’ improved brand momentum with consumers has occurred “faster than we had expected” and that a mid-term Ebit margin target of 10 percent remains achievable for the company despite external challenges. One such obstacle remains currency fluctuation, which is forecast to negatively impact reported revenues and gross margin development this FY. But, Adidas is holding to its raised annual guidance calling for high-single-digit, currency-neutral revenue growth and a full-year operating profit of approximately €1 billion. While he is banking on a “very strong” H2, being able to supply market demand will be crucial.
“Remember, we said in 2023 we would be a breakeven company; in 2024, a better company; and then in 2025, we should be a good company,” Gulden told analysts. And then, in 2026, we promised you to be a healthy company, which we define as a double-digit growing company with a 50 to 52 percent gross margin. That’s where we already are (on margin).”
Earlier this week, the website Simply Wall Street cited Adidas’ improved financial health and operational momentum while estimating its shares are currently trading at a nearly 33 percent discount to fair value.
A deeper look at Q2
Strong double-digit growth from Adidas Originals and Football coupled with sales gains in running, training, performance basketball, and sportswear contributed to a reported 15 percent increase in year-over-year footwear sales (+17% currency-neutral) to €3.57 billion from €3.10 billion in the year-ago period. The brand’s Samba, Gazelle, Spezial and Campus styles fueled a double-digit sales increase in Lifestyle footwear.
Apparel sales rose 3 percent (+8% currency-neutral) to €1.89 billion from €1.84 billion, bolstered by strong double-digit improvement in football, with jersey sales from the Euro 2024 and Copa America driving the gain. The company said there was a conservative approach to apparel sell-in elsewhere, particularly in North America. Meanwhile, accessories and gear sales fell 9 percent to €370 million from €405 million.
By segment, wholesale increased by 17 percent to €3,415 million on a currency-neutral basis. Direct-to-consumer sales rose by 4 percent to €2.39 billion from €2.34 billion, with own retail sales up 15 percent and e-commerce sales down by 6 percent.
Europe paced all regions
The operating profit in Adidas’ home market rose by 32 percent to €354 million from €268 million as reported revenues increased by 20 percent to €1.91 billion and gross margin improved by 260 basis points to 50.1 percent. The group has embraced the European retail community over the last 18 months, according to Gulden. This began with a visit to Herzo, and relationships have steadily strengthened since then, as both parties have worked jointly to improve sell-through conversion rates and keep a tight handle on supply flow where necessary.
In North America, Q2 operating profit slid by 18 percent to €156 million from €192 million in the year-ago period, as reported sales tumbled by 7 percent to €1,302 million, and year-over-year gross margin slipped by 320 basis points to 43.2 percent.
In Greater China, reported Q2 revenues surged by 7 percent (+9% currency-neutral) to €822 million from €766 million, but gross margin dipped by 200 basis points to 52.2 percent from 54.2 percent. Operating profit in the period rose by 9 percent (+12% currency-neutral) to €189 million from €173 million.
| Adidas - Sales | |||
|---|---|---|---|
| 2024 | 2023 | Change | |
| Quarter ended June 30 (€ million) | |||
| Europe | 1,912 | 1,592 | 20.1% |
| North America | 1,302 | 1,399 | -6.9% |
| Greater China | 822 | 766 | 7.3% |
| Emerging markets | 749 | 600 | 24.8% |
| Latin America | 673 | 596 | 12.9% |
| Japan / South Korea | 321 | 326 | -1.5% |
| Other businesses | 23 | 48 | -52.1% |
| Half ended June 30 (€ million) | |||
| Europe | 3,645 | 3,101 | 17.5% |
| North America | 2,424 | 2,575 | -5.9% |
| Greater China | 1,719 | 1,650 | 4.2% |
| Emerging markets | 1,461 | 1,272 | 14.9% |
| Latin America | 1,287 | 1,191 | 8.1% |
| Japan / South Korea | 660 | 673 | -1.9% |
| Other businesses | 55 | 128 | -57.0% |
| Source: Adidas | |||
Emerging Markets generated 25 percent sales growth in Q2 to €749 million versus €600 million in the year-ago period on a flat gross margin of 51.0 percent. The segment’s operating profit soared 34 percent to €159 million from €119 million.
In the Japan/South Korea segment, Q2 operating profit increased by 26 percent to €91 million from €73 million despite a 2 percent slip in revenues to €321 million from €326 million. Gross margin improved by 220 basis points to 59.4 percent.
In Latin America, meanwhile, the Q2 operating profit declined by 5 percent to €145 million from €153 million despite 13 percent (+33% currency-neutral) sales growth to €673 million from €596 million. Gross margin tumbled by 310 basis points to 47.6 percent.
