Dive Brief:
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Following its decision earlier this year to sell its remaining Yeezy inventory at least at cost, Adidas on Tuesday said the now-discontinued goods boosted its Q1 results. The latest Yeezy drop generated about 150 million euros ($160 million at press time) in revenue and 50 million euros in operating profit.
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Overall in Q1, revenues grew 3.5% year over year to 5.5 billion euros, gross margin expanded by 6.4 percentage points to 51.2% and operating profit reached 336 million euros. On a currency-neutral basis, revenues rose 8%, according to a preliminary Q1 report.
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As a result of this better-than-expected performance, the brand increased its full-year outlook, now expecting currency-neutral revenues to rise by mid- to high-single-digits, up from previous guidance of a mid-single-digit rate; operating profit is now expected to reach about 700 million euros, up from 500 million.
Dive Insight:
Adidas’ Q1 performance and new outlook owe much to its Yeezy products, left over from a partnership that the brand dissolved in 2022 due to antisemitic remarks and other problematic behavior from Ye, formerly known as Kanye West.
The brand has been here before: Sales of remaining Yeezy inventory led to guidance upgrades last year, too, in July and again in October. Yet, just as its troubles in recent years extended beyond Yeezy, Adidas now appears to be gaining momentum without Yeezy factored in, too.
Excluding the impact of the Yeezy inventory, currency-neutral Q1 revenues rose 5% year over year, and gross margin expanded by more than 550 basis points, according to research from Wedbush analysts led by Tom Nikic. That “represents Adidas's best organic top-line growth” since early 2021, likely driven by strong demand for retro styles and strength in performance categories like soccer and basketball, they said.
Wedbush and Telsey Advisory Group analysts both hailed momentum and escalating brand heat, and called out particular strength in the company’s Terrace lines. Cleaner inventory has also allowed Adidas to avoid discounting, according to Telsey analysts led by Cristina Fernández.
While the Yeezy drops drive sales, they don’t add to the bottom line because they’re sold at cost. Adidas’ revised guidance could improve further if some of those goods are sold at a profit, according to Wedbush.
“Momentum appears to be building up at Adidas,” Wedbush analysts said, adding that “we do have to give credit to CEO Bjørn Gulden and team for sowing the seeds of a turnaround that's making good progress.”
