Adidas beats on earnings, raises profit guidance
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Adidas beats on earnings, raises profit guidance

German sneaker giant Adidas reported third-quarter earnings this week, demonstrating increased profitability despite a small miss on revenue expectations. The company said it’s making in-roads everywhere except western Europe (where sales remained largely flat), and increased its guidance on profitability for the full year. CEO Kasper Rorsted claimed that Adidas had seen a “stellar quarter” and that it would also see a stellar year.

Adidas’s share price has appreciated by 20% so far this year

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Source: Yahoo Finance

The company reported strong financials. Adjusted earnings for the third quarter came in at 21% higher than the year-ago quarter. Net profit was up 19% over the same period to 656 million euros, easily beating analysts’ expectations of 619 million euros. Sales, however, logged a slight miss on consensus estimates. Adidas said that they rose 8% year on year, on a currency-adjusted basis, to 5.87 billion euros. The Street had hoped for 5.92 million euros.

According to Rorsted, western Europe is the only thorn in Adidas’s side. He pointed out that the European economy is “more impacted than any other economy” by a lack of consumer confidence, which has led to less spending. He also singled out Brexit as a driver of this poor sentiment, describing it as the “most unwise decision from an economic standpoint in the last 30 years.” Making up for this European weakness, however, was Asian growth. Rorsted described China as a “very strong growth driver for years to come.”

In a recent comment to reporters, Rorsted said: "Despite the fact that we're investing more than ever in our company and in managing investments, we will have the highest margin in the history of the company which is 10.8 percent by the end of the year so we're extremely happy with the overall run of our business, particularly in the U.S., in Asia and online."

He added that a major driving force behind Adidas’s phenomenal increase in online sales (ecommerce revenue rose by an incredible 76% against the third quarter of the previous year) was Adidas’s collaboration with Kanye West.

As a result of third-quarter earnings, Adidas has lifted guidance for profitability and lowered it for sales. The company now expects net income from continuing operations to grow by 16% to 20% for the full year (previously, it forecast net income between a range of 13% to 17%). Full year currency neutral sales, however, have been lowered to a range of 8% to 9%, down from 10% in previous guidance.

Disclosure
Dominion holds Adidas in its Global Trends Luxury Fund.


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