Running with him: Adidas CEO Björn Gulden with the official match ball for the 2024 European Football Championship. picture alliance/dpa | Daniel Karmann
Adidas will publish new business figures for the first quarter of 2024 at the end of April.
The sportswear manufacturer is expected to achieve sales growth of eight percent despite exchange rate headwinds, according to an analysis by Deutsche Bank. The gross margin rose to 51.2 percent.
Deutsche Bank reiterates its buy rating on Adidas shares, but warns that the Yeezy brand will not make further EBIT contributions this year.
Almost two weeks before the publication of the next annual report, Adidas announced its preliminary results. And these should make shareholders in the sporting goods manufacturer happy: more sales, higher margins and rising forecasts.
For these reasons, Deutsche Bank reiterated its buy recommendation for Adidas shares in a recent analysis. This emerges from a report from the bank that is available to Business Insider. But in one area the forecasts are limited.
So what should investors pay attention to before the new Adidas quarterly figures are published? Here we classify Deutsche Bank’s analysis:
Convincing business figures at Adidas
“First quarter revenue growth was 8 percent despite foreign exchange headwinds,” said Adam Cochrane, an analyst at Deutsche Bank.
According to the report, this growth significantly exceeded expectations of 4.6 percent. Despite the headwinds from unfavorable exchange rates, growth remained robust at 4 percent within the reported range.
What this means for you: The company is growing successfully despite economic challenges, such as unfavorable exchange rates, and exceeding analysts’ expectations, which can increase confidence in Adidas’ strength and stability.
Significant margin improvement
“Gross margin increased impressively by 640 basis points to 51.2 percent,” highlights Cochran. Gross margin is a company’s percentage profit after deducting manufacturing costs from total sales.
Compared to previous forecasts, the new quarter’s gross margin significantly exceeded expectations, generating almost €200 million more EBIT than Deutsche Bank’s expected €136 million and the general consensus of €150 million from various banks.
A positive development for investors, as the increase in gross margin indicates the improved efficiency of Adidas’ operations.
Raised annual forecasts
“The annual forecast was raised to an EBIT of around 700 million euros after the quarterly results,” said the analyst.
EBIT stands for “Earnings Before Interest and Taxes” and is a key figure that represents a company’s operating profit before interest and taxes are deducted. Compared to the previous forecast of 500 million euros, this is considered a significant increase.
This shows that the company is operating more efficiently and generating higher operating profits, which is stronger than expected. This signals to investors solid financial health and better positioning against economic uncertainties.
The share is still “not cheap”
According to the report, particular attention is paid to the valuation of Adidas shares, which are currently particularly high.
“The valuation is not cheap at around 22 times expected earnings for 2026,” explains Cochrane. However, this does not stop Deutsche Bank from recommending buying the stock.
Despite a challenging valuation, Deutsche Bank still sees significant upside potential for the stock, supported by “sustained revenue growth and solid margin trends as key drivers.”
The Yeezy brand is considered a weak point
Deutsche Bank recommends that investors should pay particular attention to the development of sales figures. This is particularly true given that an important brand for Adidas will no longer contribute to profits.
“Yeezy is not expected to make further EBIT contributions this year, which could limit growth potential,” the analyst warns.
This is important for retail investors because it suggests that Adidas’ future financial performance could depend heavily on how well the company can promote and make its other product lines profitable compared to Yeezy.
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