Adidas lifts 2024 guidance, but analysts note medium-term outlook uncertainty

Investing.com -- Shares in Adidas (OTC:ADDYY ) slipped on Wednesday as analysts flagged some uncertainty over the sustainability of the German athletic apparel group's sales momentum beyond the current year.

In a preliminary earnings update on Tuesday, Herzogenaurach, Germany-based Adidas said its third-quarter currency-neutral revenues grew by 10% versus the year-ago period, in line with estimates.

Overall gross margin edged up by two percentage points to 51.3%, outpacing consensus expectations of 50.7%. The year-over-year increase in underlying gross margin was "even stronger", Adidas noted -- a statement that analysts at Bernstein interpreted as a sign of solid demand for the firm's Terrace line of sneakers.

Quarterly operating profit of 598 million euros, which included a contribution of roughly 50 million euros from the sale of parts of Adidas' remaining inventory of Yeezy-branded products, also topped analysts' projections. Adidas has been pushing to offload the Yeezy line after its high-profile break-up in 2022 with Ye, the rapper formerly known as Kanye West.

Adidas noted that Yeezy sales over the rest of its current fiscal year would occur on average "at cost", implying that the firm would not book a profit from the transaction. As a result, while Adidas expects to see 50 million euros in sales in its fourth quarter from the items, they are not tipped to contribute to profit during the period.

Still, the company improved its full-year guidance for currency-neutral revenue growth to 10%, up from a prior estimate for a high-single-digit rate rise, citing its third-quarter performance and "brand momentum." Operating income is also now seen at a level of around 1.2 billion euros versus earlier guidance of about one billion euros.

But the Bernstein analysts flagged that the the outlook "leans on the conservative side", adding that "there’s less room for error -- three quarters of beats are already baked in, and Yeezy will be a smaller boost in [the fourth quarter]."

"[W]hile 2024 is going strong, the debate continues to be around 2025-26 and whether Adidas can keep up the momentum and beat the medium-term targets," the analysts said.

(Sam Boughedda contributed reporting.)

Source: Investing.com