Adidas AG Earnings Call Signals Profitable Rebound

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 an upbeat tone, as management showcased strong demand, rising profitability and renewed brand momentum. Currency‑neutral sales climbed sharply, margins held up despite clear headwinds and direct‑to‑consumer channels surged, while management downplayed risks from tariffs, FX and geopolitics, insisting these pressures remain manageable.

Strong Top-Line Growth

Adidas reported a robust start to the year, with Q1 net sales up 14% on a currency‑neutral basis and 7% reported, reaching nearly EUR 6.6 billion in revenue. Management emphasized that growth was broad‑based across markets and channels, underscoring healthy consumer demand for the brand globally.

Direct-to-Consumer and E‑commerce Momentum

Direct‑to‑consumer sales were a standout, with Harm Ohlmeyer highlighting 22% growth in the DTC business, powered by strong brand engagement. Wholesale grew 8%, while own stores jumped 19% and e‑commerce 25%, improving full‑price sell‑through and giving Adidas greater control over pricing and consumer experience.

Significant Operating Profit Improvement

Operating profit improved meaningfully to EUR 705 million, translating into an operating margin of 10.7% for the quarter. Year over year, operating profit increased by around EUR 100 million, signaling that Adidas is converting its top‑line momentum into better profitability despite cost and FX headwinds.

Apparel and Performance Category Outperformance

Apparel was the growth engine, with sales rising 31%, significantly outpacing footwear and accessories. Performance categories grew 29%, led by running near 30% and strong momentum in football and training, reflecting renewed traction in Adidas’s core sports performance franchise.

Product and Innovation Momentum

Management highlighted a packed innovation pipeline, citing launches such as Evo 3, Hyperboost and Adizero Prime X EVO UltraCharge. New concepts including a hybrid training shoe, printed technology and the first adaptive running shoe are designed to raise brand heat and feed a stronger commercial pipeline across performance and lifestyle.

Regional Strengths and Strategic Wins

Greater China, South Korea, Japan and Latin America all posted strong momentum, with Latin America flagged as the number one region in terms of growth. Adidas also secured a new long‑term partnership with the Bundesliga through 2034 and expanded its motorsport presence in Formula 1, reinforcing its visibility in key global sports.

Capital Return and Balance-Sheet Actions

Adidas continued to reward shareholders, completing a EUR 500 million share buyback covering 3.3 million shares and planning an additional EUR 500 million program. Alongside a proposed EUR 500 million dividend, the company targets around EUR 1.5 billion in cash returns to investors in 2026, signaling confidence in future cash generation.

Maintained Guidance and Medium-Term Targets

The company reaffirmed its 2026 roadmap and medium‑term ambitions, projecting roughly EUR 2 billion of additional sales per year over the coming years. Management aims for high‑single‑digit growth in 2027–28 and an EBIT margin of at least 10% by 2027, while pledging continued cost discipline and balanced investment in marketing and innovation.

Gross Margin Headwinds

Despite growth, gross margin slipped to 51.1%, about 100 basis points lower than a year earlier, as FX and tariffs took their toll. Management quantified FX translation effects and new U.S. tariffs as roughly EUR 50 million each in negative impact, underscoring how external factors are weighing on otherwise solid fundamentals.

Footwear and Lifestyle Softness

Footwear lagged the broader business, with growth of only 4% compared with the 31% surge in apparel, highlighting a relative weakness in lifestyle shoes. Executives pointed to elevated inventories, limited product newness and discounting pressure in Europe and North America, which are dampening both volumes and margins in this key segment.

Inventory and Working Capital Build

Inventories climbed 13% reported and 17% currency‑neutral as Adidas deliberately bought early to secure product availability and support growth. This strategy, combined with higher receivables, pushed working capital up about 21% and put pressure on near‑term cash conversion, though management framed it as a controlled, planned build.

Regional Geopolitical Impact in the Middle East

The conflict in the Middle East weighed on operations, causing some store closures and delivery disruptions during the quarter. Adidas estimated approximately EUR 30 million of lost sales tied to the region in Q1 and outlined downside scenarios of EUR 50–100 million if conditions worsen, though management stressed the impact is manageable.

Promotional Environment and Retail Discounting

A highly promotional retail backdrop continues to challenge Adidas, particularly in footwear and lifestyle categories where competitors are running aggressive discounts. This environment pressures full‑price sell‑through and complicates relationships with wholesale partners, forcing Adidas to balance brand strength with market share and inventory health.

Rising Cost Uncertainty

Management flagged potential cost pressures linked to higher oil prices, which can drive up material and transport expenses over time. Some freight and transport upcharges are already visible, and executives acknowledged uncertainty around how much of these rising input costs can be passed through without hurting demand.

Category Weakness in Basketball and Accessories

Basketball remains a soft spot, with Q1 typically a smaller quarter but still reflecting a weak overall trend for the category. Accessories, which had previously faced delivery issues in the U.S., showed partial recovery helped by World Cup‑linked products, yet the segment still lags the broader performance rebound.

FX and Tariff Exposure on Margins

Currency effects and tariffs remain structural drags, with FX reducing reported growth to 7% versus 14% on a currency‑neutral basis. New U.S. tariffs weigh on gross margin, and while a potential tariff recovery is under legal review, management is not including any benefit in current guidance, underscoring a cautious stance.

Forward-Looking Guidance and Outlook

Looking ahead, Adidas expects to sustain strong top‑line growth, adding around EUR 2 billion in sales annually while targeting a 10%‑plus EBIT margin by 2027. Despite an anticipated 3–4% FX headwind this year, management projects gross margin improvement in the second half as hedging rolls through and plans increased marketing around major sports events, reinforcing confidence in its multi‑year trajectory.

Adidas’s earnings call painted a picture of a brand firmly back on the front foot, with strong growth, improved profitability and a disciplined capital return plan. While FX, tariffs, regional tensions and promotional intensity remain clear risks, management’s reaffirmed guidance and innovation‑led strategy suggest the company is well‑positioned to navigate volatility and sustain momentum.