Adidas AG Earnings Call Signals Confident Turnaround

Adidas AG ((ADDYY)) has held its Q1 earnings call. Read on for the main highlights of the call.

Adidas AG’s latest earnings call struck a confident tone, with management emphasizing strong demand, accelerating direct‑to‑consumer sales, and a sharp rebound in profitability. While foreign‑exchange, tariffs, and a tougher footwear market weighed on margins and cash, executives framed these as manageable headwinds against a backdrop of double‑digit growth and clear medium‑term profit targets.

Broad-Based Top-Line Acceleration

Adidas reported first‑quarter net sales of about EUR 6.6 billion, up 14% on a currency‑neutral basis and 7% reported, underscoring broad demand across regions and channels. Management stressed that growth was not driven by a single product or geography but reflected a healthier overall business, with both wholesale partners and own channels contributing.

DTC And E‑Commerce Power The Brand

Direct‑to‑consumer was a standout, with DTC sales rising 22%, including a 19% jump in own stores and a 25% surge in e‑commerce. Executives highlighted that selling more directly to consumers supports higher full‑price sell‑through, better data on shopper behavior, and stronger brand engagement, helping Adidas steer product allocation and reduce reliance on discounting.

Profitability Rebounds Strongly

Operating profit climbed to EUR 705 million, lifting the operating margin to 10.7% and adding roughly EUR 100 million year on year. Management pointed to a better product and channel mix, tighter cost control, and operating leverage from higher sales as key drivers, even as gross margin faced pressure from currency and tariff effects.

Apparel And Performance Lead Growth

Apparel was a major growth engine, with sales up 31%, while performance categories overall grew 29%, led by running at close to 30% growth. Football and training also showed very strong momentum, suggesting that Adidas is regaining traction with athletes and sport‑focused consumers after several challenging years.

Innovation Pipeline Keeps Brand “Hot”

Management spotlighted a slate of high‑visibility product launches, including Evo 3, Hyperboost, Adizero Prime X EVO UltraCharge, a new hybrid training shoe, printed technologies, and its first adaptive running shoe. These innovations are designed to create “brand heat” around performance and running, fueling both immediate sales and a deeper commercial pipeline across categories.

Regional Wins And Strategic Partnerships

Greater China, South Korea, Japan, and Latin America all delivered strong momentum, with Latin America flagged as the number‑one region in terms of performance. Adidas also extended a marquee long‑term partnership with the Bundesliga through 2034 and expanded its motorsport presence in Formula 1, using these deals to reinforce global brand visibility.

Shareholder Returns Back In Focus

On capital allocation, Adidas completed a EUR 500 million share buyback, retiring 3.3 million shares, and plans another EUR 500 million repurchase alongside a proposed EUR 500 million dividend. Together, these moves imply about EUR 1.5 billion of cash returns planned for 2026, signaling confidence in the balance sheet and future cash generation.

Guidance And Medium-Term Ambitions

Adidas reaffirmed its full‑year outlook and longer‑term goals, targeting roughly EUR 2 billion in additional sales per year and a return to a 10%+ EBIT margin by 2027, with high‑single‑digit growth expected into 2027–28. Management acknowledged a 3–4% FX headwind for the year but expects gross margin to improve in the second half as hedges roll, while stepped‑up World Cup marketing should support demand.

Margin Drag From FX And Tariffs

Gross margin came in at 51.1%, about 100 basis points lower year on year, with management blaming foreign‑exchange translation and new U.S. tariffs. Each of these factors was described as a roughly EUR 50 million negative in the quarter, dampening reported revenue growth and squeezing margins despite underlying operational improvements.

Footwear And Lifestyle Softness

By product, footwear grew only 4%, well behind the 31% growth in apparel, as lifestyle shoes suffered from elevated inventories and a lack of newness in Europe and North America. Management noted that discounting pressure in lifestyle footwear continues to weigh on both sell‑through and margins, even as performance‑oriented footwear trends more favorably.

Working Capital Build Weighs On Cash

Inventories rose 13% (17% currency‑neutral) due to deliberate early buying to secure product availability, while receivables climbed 11%, lifting overall working capital by about 21%. Executives conceded that this will dampen near‑term cash conversion, but argued that the build positions Adidas to support demand and avoid the stock shortages seen across the industry in recent years.

Middle East Conflict Hits Sales

Geopolitical tensions in the Middle East disrupted operations, with store closures and delivery issues reducing first‑quarter sales by an estimated EUR 30 million. Management outlined downside scenarios in which a worsening situation could shave EUR 50–100 million off near‑term revenue, though they stressed that this remains a contained regional risk at present.

Promotional Market And Rising Costs

Executives flagged an aggressive promotional environment, with retailers and competitors pushing discounts that pressure full‑price sell‑through and complicate wholesale relationships, particularly in lifestyle footwear. At the same time, potential cost inflation from higher oil prices, materials, and transport is adding uncertainty, with Adidas already seeing some freight and transport upcharges.

Category Laggards And FX Exposure

Basketball remained a weak spot, with Q1 historically small but still showing a soft trend, and accessories only partly recovered after prior delivery issues in the U.S., despite a boost from World Cup product. Currency headwinds also reduced reported growth versus constant‑currency figures, and new tariffs weighed on gross margin, while a possible tariff refund remains excluded from current guidance.

Adidas’s earnings call painted the picture of a company back on offense, driven by strong DTC growth, a resurgent apparel and performance franchise, and disciplined cost control. While FX, tariffs, footwear softness, and higher working capital are real risks, management’s reaffirmed guidance and targeted return to double‑digit margins suggest investors are being paid to wait for the full turnaround to play out.