Adidas profit soars, share price hits new high as a result
German sporting apparel brand Adidas, best known as the sneaker maker that vies with American giant Nike for control over sports sponsorship in games like soccer and basketball, reported first quarter earnings last Friday that sent its share price soaring to a new all-time high! The company, which has undergone a rejuvenation over the last year and pivoted to add more fashionable celebrity trends and champion sustainability, has a rare problem: it can’t keep up with demand.
Adidas’s share price jumped on the back of great results last week
Source: Yahoo Finance
Adidas said that sales for the quarter rose by 4% year-on-year to 5.88 billion euros. That was a slight but significant beat against the Street’s prediction for sales of 5.8 billion euros. The company also saw success – albeit, by a much greater margin – on earnings. Adidas reported net profit of 632 million euros, easily beating analysts’ expectations for profit of 567 million euros, and rising by 17% against the year-ago quarter.
There’s no doubt that these are great results – but some investors wanted to know why the pace of sales growth was slowing. The answer is simple: first, a decline in Europe which CEO Kaspar Rorsted assured analysts is down to well-understood branding problems he is in the process of fixing. And second: demand is so high in North America that the company can’t keep up!
Speaking to CNBC, Rorsted fleshed out the results with some commentary. Speaking about the North American business, he said: “The challenge we have right now is we can’t really supply the market. We’re in a situation where the demand is higher than the supply. We should have managed that better but still, a better situation to be in than the reverse where the supply is bigger than the demand.”
Rorsted also turned his attention to Europe, adding: “Europe being a third of our business has to contribute to our growth. We will see Europe revert to growth at the end of the year, so we are going to go one or two quarters more with negative or flat growth in Europe, and then of course Europe has to get back to growth.”
Dominion holds Adidas in its Global Trends Luxury Fund.
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