Adidas beats the Street, more profitable than expected
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Adidas beats the Street, more profitable than expected

German athleisure giant Adidas reported earnings last week that beat the Street, and demonstrated that CEO Kasper Rorsted (who took over in 2016) is succeeding in his quest to make the company more profitable. The company shrugged off worries over trade wars to reiterate guidance and deliver a great quarter – thanks, in part, to the activity caused by the World Cup.

Adidas’s share price rocketed after posting strong earnings

graph 1408 adidas

SOURCE: Yahoo Finance

The company said that net profit for the quarter soared by 20% to €418 – a clear and significant beat against analysts’ expectations of €387 million. Adidas also beat on sales, delivering €5.3 against expectations of €5.2, a 10% rise against the previous year, rather than the predicted 8%. Particularly notable here is the disparity between the two beats – Rorsted’s managing to squeeze more profit out of Adidas’s business, despite still lagging U.S. rival Nike’s profit margins.

However, there was a black spot over the quarter – the company announced that it was taking a “medium triple-digit million euro impairment” in regards to Reebok after the German Financial Reporting Enforcement Panel disputed the way in which the firm calculated “historical book value.” The company said that this wouldn’t impact full year earnings, the guidance for which it reiterated.

Speaking about Reebok in the wider sense, Rorsted was eager to put a positive spin on the brand, saying: "We are very confident we are going to get Reebok into black territory by 2020, that's been the primary target and it also means in certain regions we are willing to take a slower revenue growth or even a declining one. However … We are very confident we are doing the right thing for Reebok."

Disclosure

Dominion holds Adidas in its Global Trends Luxury Fund.


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