Buoyed by improved results in many aspects of its business, from inventory level to gross margin, Adidas reported better-than-expected Q1 results. It said it was encouraged by the market progress that it is making despite a volatile and “not easy” overall marketplace.
Operating income was €336 million, up from €60 million in the year-ago period ended March 31. Net income from continuing operations was €171 million, against a loss of €24 million, as currency-neutral revenues rose by 8 percent to €5,458 million from €5,274 million. Excluding €150 million in Yeezy sales, Q1 currency-neutral sales increased by 5 percent.
| Adidas - Income | |||
|---|---|---|---|
| Quarter ended March 31 (€ million) | |||
| 2024 | 2023 | Change | |
| Net sales | 5,458 | 5,274 | 3.5% |
| Cost of sales | 2,662 | 2,911 | -8.6% |
| Gross profit | 2,796 | 2,363 | 18.3% |
| Royalty and commission income | 17 | 25 | -32.0% |
| Other operating income | 2 | 39 | -94.9% |
| Other operating expenses | 2,478 | 2,367 | 4.7% |
| Operating profit | 336 | 60 | 460.0% |
| Financial income | 24 | 13 | 84.6% |
| Financial expenses | 115 | 41 | 180.5% |
| Pre-tax | 245 | 32 | 665.6% |
| Tax | 74 | 55 | 34.5% |
| Net income from continuing operations | 171 | -24 | – |
| Loss from discontinued operations, net of tax | 1 | 6 | 83.3% |
| Net income | 170 | -30 | – |
| Diluted EPS from continuing operations | 0.96 | -0.18 | – |
| Diluted EPS from continuing and discontinued operations | 0.95 | -0.22 | – |
| Source: Adidas | |||
Revenues were up in all geographic segments except for North America. Europe (+14%), Latin America (+18%), and Emerging Markets (+17%) each posted double-digit sales gains, followed by Greater China (+8%) and Japan/Korea (+7%). North American sales fell by 4 percent.
| Adidas - Net sales | |||
|---|---|---|---|
| Quarter ended March 31 (€ million) | |||
| 2024 | 2023 | Change | |
| Europe | 1,733 | 1,509 | 14.8% |
| North America | 1,122 | 1,177 | -4.7% |
| Greater China | 897 | 884 | 1.5% |
| Emerging markets | 712 | 672 | 6.0% |
| Latin America | 615 | 595 | 3.4% |
| Japan / South Korea | 339 | 347 | -2.3% |
| Other businesses | 32 | 80 | -60.0% |
| Source: Adidas | |||
The group was encouraged by 640 basis point growth in gross margin to 51.2 percent, driven by a 22 percent drop (€1.2bn) in inventories, less discounting, lower sourcing costs and a more favorable business mix. Additionally, there was a positive development from strong full-price sales in DTC channels and better sell-through rates by its retail partners.
“We will continue to ‘overinvest’ into the product, into the brand, into sales and marketing to ensure continued growth,” said CEO Bjørn Gulden. “We will not try to optimize short-term profit. We know we are not as good as we should be, but I feel that we are making the progress that we had hoped for.”
Two weeks ago, Adidas upgraded its full-year outlook with expectations of mid- to high-single sales growth and an annual operating profit of approximately €700 million versus prior guidance of €500 million. However, unfavorable currency is projected to weigh negatively on the company’s FY24 profitability and continue to hurt both reported revenues and gross margin development for the remainder of the year.
In Q1, footwear sales increased by 13 percent currency-neutral, driven by Originals and football (soccer). Lifestyle footwear sales jumped by double digits, fueled by demand for the Samba, Gazelle, Spezial and Campus franchises. Apparel sales rose by 2 percent despite high inventory levels in North America, which caused a lower sell-in rate into the wholesale channel. Accessory sales fell by 1 percent.
By channel, DTC sales increased by 20 percent and own retail revenues lifted 11 percent higher, driven by double-digit growth across the brand’s full-price concept stores. E-commerce revenues, meanwhile, improved by 34 percent, including the positive impact of the Yeezy sales.
