Adidas AG has increased its profit target for the year due to strong demand for classic sneakers like the Samba and a boost from sales of its dwindling stockpile of Yeezy footwear. As a result, the company’s shares have gained.
The German sportswear company now anticipates generating an operating profit of approximately €700 million ($743 million), according to a statement. This is an improvement from the previous target of €500 million, although it still falls short of analysts’ average estimate of €871 million.
In his second year as CEO, Bjorn Gulden is working to drive rapid growth at Adidas and narrow the gap with industry leader Nike, which has faced challenges in recent quarters with a slowdown in sales and inventory issues. Adidas, too, has faced difficulties, with a decrease in net sales in 2023 following years of crisis under Gulden’s predecessor, culminating in the termination of the company’s partnership with the rapper and designer Ye.
Following the release of the company’s statement after the close of trading in Frankfurt on Tuesday, Adidas shares rose by as much as 4.4% early Wednesday. Nike shares also saw a slight increase in US trading late Tuesday.
Gulden has committed to returning Adidas to growth this year, with momentum expected to pick up in the second half as the company reduces inventories of apparel in the US and Yeezy footwear. The CEO from Norway aims for consistent growth in both sales and profit in the coming years after the challenges Adidas faced during the pandemic era, when demand dropped in China. Adidas also became overly dependent on the partnership with Ye, which created a crisis after the celebrity made offensive remarks.
Since assuming the role in January 2023, Gulden has pushed for faster decision-making at Adidas and embraced a wider range of sports, rather than focusing solely on major athletic events. He believes that investing more in lesser-known sports like weightlifting and wrestling helps enhance credibility and energy for the brand, harkening back to the principles of Adi Dassler, who founded Adidas about 75 years ago.
Despite this, the company’s current success is largely linked to casual footwear, with a surge in popularity of classic models like the Samba and Gazelle. There is also ongoing demand for the controversial Yeezy footwear. The most recent Yeezy release brought in revenues of around €150 million and an operating profit of about €50 million in the first quarter, according to Adidas.
Gulden, known for offering conservative guidance early in the year, is still assuming that the company will not generate additional profit from approximately €200 million in Yeezy sales this year. Adidas also expects adverse currency effects to impact profits. The company plans to sell off its remaining Yeezy inventory in 2024.
Adidas reported €5.5 billion in revenue for the first quarter, higher than the €5.3 billion estimated by analysts.
Under Gulden’s leadership, the company has become a favorite in the industry, with shares rising about 25% in the past year while Nike’s have fallen by 26%. Nike has faced challenges with declining demand for bulky basketball sneakers and criticism for slow product innovation. In December, Nike CEO John Donahoe outlined a plan to reduce costs by as much as $2 billion over the next three years, including layoffs that will affect 2% of the workforce.
Meanwhile, Adidas is receiving praise for its popular gum and rubber-soled terrace style sneakers, including the Samba, as noted by analysts at Morgan Stanley in a recent report. Morgan Stanley upgraded its recommendation on Adidas from underweight to overweight and raised its price target from €175 to €235.
