Adidas, the world’s second-largest sportswear manufacturer, increased its third-quarter net income by 70.6% despite slowing revenue growth. Adidas’ revenues rose 3.4% to 5.75 billion euros, in line with the market forecast. Excluding changes in exchange rates, it increased by 3%. It should be noted that the pace of revenue growth slowed significantly compared to a 51.5% rise in the second quarter, due in part to a worsening sales situation in China. Excluding changes in currency exchange rates, the company’s revenue in China in the last quarter decreased by 11% (to 1.155 billion euros), in other countries of the Asia-Pacific region – by 9.6% (to 504 million euros). Meanwhile, it grew in North America by 6.6% (to 1.4 billion euros), in EMEA – by 8.1% (to 2.25 billion euros), in Latin America – 53.4% (to 405 million Euro).
Net profit in July-September amounted to 984 million euros against 577 million euros in the same period last year. The increase was due, among other things, to the sale of Reebok for 2.1 billion euros to the American company Authentic Brands Group. Adidas’ net profit from continuing operations declined 10.4% to € 479 million from € 535 million a year earlier. Operating profit decreased by 8.5% – to 672 million euros from 735 million euros. Operating profit margin dropped to 11.7% (experts had expected 11.2%) compared to 13.2%. Adidas management reaffirmed its 2021 forecast for net income from continuing operations of € 1.4-1.5 billion and operating margin of 9.5-10%, but now expects the numbers to be at the lower end of the announced ranges.
Disruption to global supply chains continues to negatively impact Adidas’ business, but we consider this to be a temporary factor. Nonetheless, against the backdrop of a weaker Q4 outlook, we cut our target share price from € 365 to € 318, but maintain a positive outlook on the company’s business. We believe that Adidas will be able to achieve 8-10% annual sales growth by 2025 thanks to innovations used to improve its product line, significant growth in digital sales and market share growth in 12 key cities around the world. Adidas is investing over € 1 billion in digital platform development and expects online revenues to double to € 8-9 billion by 2025.
Adidas AG is the second largest sportswear manufacturer in the world, following Nike, and it produces and retails a wide range of athletic footwear, apparel, and accessories. Founded in Germany in 1949, adidas acquired Reebok in 2005 which is currently being held for sale. Adidas sells through wholesale and direct channels, and sponsors hundreds of high-profile athletes and athletic teams worldwide. A multi-sport leader with particular focus on football, running, and basketball, adidas also targets the street wear, athleisure, and fast fashion markets through its adidas Originals, Yeezy, and adidas NEO labels, and focuses onperformance technology with innovations including BOOST and Climacool.