Adidas AG ‘s (OTC:) ADRs are up 3% Tuesday after the company lifted its full-year earnings and revenue guidance on Tuesday after revealing a better-than-expected performance in its first quarter.
The sportswear giant revealed that Q1 revenues grew 4% to €5.46 billion, compared to €5.27 billion in the first quarter of 2023.
In addition, the company’s gross margin improved by 6.4 percentage points to 51.2% during the quarter, up from 44.8% in the prior-year quarter. Operating profit came in at €336 million in Q1.
As a result of its “better-than-expected performance” Adidas increased its full-year guidance. It now expects currency-neutral revenues to increase at a mid to high-single-digit rate in 2024.
Operating profit is now expected to reach around €700 million, up from the previous expectation of around €500 million.
Adidas noted that the latest Yeezy drop generated revenues of around €150 million and an operating profit of around €50 million in the first quarter.
In its guidance, the company assumes the sale of the remaining Yeezy inventory during the remainder of the year to occur on average at cost.
However, Adidas “continues to expect unfavorable currency effects to weigh significantly on the company’s profitability this year,” it said in its press release. These effects are projected to continue to negatively impact both reported revenues and the company’s gross margin development in 2024.
Reacting to the report from Adidas, analysts at Telsey Advisory Group said in a note that they had expected Adidas’ 1Q24 to deliver upside due to the Yeezy drop in March and the company’s conservative guidance, but the pre-announced figures were “much better than expected.” The firm raised its price target for Adidas shares to €225 from €205.
UBS believes the pre-release confirms the sportswear giant’s accelerating momentum. The bank raised its price target for the stock to €231 from
€228 per share. “Given the conservative guidance and continued expectation of better sales growth throughout the year, this print will be, in our view, taken well by the market, thus confirming Adidas as one of the best earnings momentum stories in the space,” UBS wrote.
Analysts at Bernstein maintained a Market Perform rating on Adidas. However, they said that while the company’s guidance was raised, it is still below consensus. “The majority of the raise is from simply passing on Q1 outperformance as well as the Q1 Yeezy sales, not from raising Q2-4 expectations,” commented the firm.
