Adidas AG Earnings Call Signals Robust Turnaround

Adidas AG ((ADDYY)) has held its Q4 earnings call. Read on for the main highlights of the call.

Adidas AG’s latest earnings call painted a picture of robust recovery and renewed confidence, as management highlighted strong revenue growth, sharply higher margins and profits, and visible product and brand momentum. Yet executives also stressed that currency headwinds, tariffs, tougher promotions, and geopolitical disruptions will weigh on reported results even as the underlying business strengthens.

Brand Rebound Fuels Double-Digit Top-Line Growth

Adidas brand sales rose 13% in FY25 on a currency-neutral basis, with quarterly growth steadily moderating from 17% to 11% through the year. That translated into about €2.8 billion of operational top-line growth for the flagship brand and a 10% currency-neutral increase for the group, although reported revenue grew just 5% after FX.

Profit and EPS Surge on Operational Leverage

Operating profit jumped 54% year over year to €2.056 billion, underscoring significant operating leverage from the revenue recovery and better cost control. Net income climbed 67%, while basic EPS surged roughly 76%, with Q4 EBIT alone reaching around €164 million, nearly triple the prior-year quarter.

Margins Rebuild on Pricing Discipline and Mix

Gross margin in Q4 reached nearly 51%, and management indicated full-year levels approached about 52% when excluding YEEZY. Executives linked the improvement to disciplined pricing and discounting, as well as a richer product and channel mix, suggesting quality of sales improved rather than relying on aggressive promotions.

Global Growth Broad-Based Across Major Regions

The recovery was not confined to one territory, with Greater China up 13%, Japan and South Korea up 14%, Latin America up 22%, and Emerging Markets up 17%. North America and Europe each delivered roughly 10% growth in FY25, offering a more balanced geographic profile after several years of regional volatility.

Performance, Running and Lifestyle Drive Category Momentum

Across categories, apparel outpaced footwear with 15% growth versus 12%, while Performance rose 15% and Lifestyle 12%, signaling breadth of demand. Running was a standout with 29% full-year growth and 36% in Q4, while Football advanced 12%, and both physical retail and e-commerce saw solid rebounds with a stable 40/60 D2C-to-wholesale mix.

Store Network Expansion and Fresh Inventory

Adidas continued to expand its retail footprint with 247 openings and 158 closures, adding around 90 net new stores during the year. Inventories were higher overall, but management stressed that about 72% was current-season goods and only around 7% was non-current-season in outlets, pointing to replenishment rather than problematic stock aging.

Balance Sheet Strength Enables Capital Returns

Net leverage improved markedly from above 3x to around 1.4x, reflecting stronger earnings and better balance sheet health. With that backdrop, the company proposed a 40% dividend increase to €2.80 per share and launched a share buyback program of up to €1 billion for 2026, with roughly €400 million already executed from the first €500 million tranche.

Multi-Year Growth Roadmap Targets Higher Margins

For FY26, Adidas is targeting high single-digit brand growth in local currencies and EBIT of about €2.3 billion as part of a broader multi-year plan. Management aims to add around €2 billion of revenue annually into 2027 and 2028 and to reach an EBIT margin above 10% by then, implying a mid-teens compound growth rate in operating profit.

Innovation and Collaborations Reinforce Brand Heat

The call underscored a strong innovation pipeline anchored by running franchises like adizero and Evo SL and the new Hyperboost foam, which is said to be 40% lighter than the prior Boost. Adidas also highlighted stronger apparel design, renewed visibility in football and basketball, and continued traction from lifestyle collaborations with high-profile partners.

YEEZY Exit Still Distorts Comparisons

Management emphasized that FY25 results were weighed down by the absence of YEEZY, with lost sales estimated at around €700 million. This removal of a once-lucrative line complicates year-on-year comparability for both top-line and operating profit, but executives framed it as largely digested and already reflected in the current base.

FX Headwinds Mask Underlying Growth

Currency effects were a significant drag, with reported growth about five percentage points below currency-neutral performance in FY25, equating to roughly a €1 billion impact. In Q4 alone, the gap was around eight points due to FX and hyperinflation accounting in markets such as Argentina and Turkey, and similar pressures are expected in FY26.

Tariffs Create a Structural Cost Drag

Tariffs were cited as a meaningful headwind, costing roughly €100 million in FY25 and expected to weigh by about €200 million on EBIT in FY26, with limited mitigation options. Management noted that recent legal and policy developments are not factored into the outlook, leaving potential upside outside the formal guidance if conditions improve.

Rebuilding Credibility in the U.S. Market

While North America delivered around 10% growth, Adidas conceded that its U.S. business remains below potential in terms of brand heat and sports visibility. The company is focusing on rebuilding sports marketing, strengthening relationships with colleges and leagues, and restoring credibility with U.S. consumers, a process executives cautioned will take time.

Higher Inventories and Working Capital Weigh on Cash

Inventories increased sharply on a reported basis, up about 70% or 23% in currency-neutral terms, which in turn raised working capital and reduced year-end cash versus plans. Management expects these levels to normalize in the first half of 2026 and to exit FY26 with inventories below €5.8 billion, easing the drag on cash generation.

Promotional Pressure Threatens Margin Discipline

Executives flagged elevated promotional activity in parts of Europe and the U.S., driven largely by retailer discounting and inventory clearing. While Adidas has so far maintained pricing discipline and avoided deep discounting, management acknowledged that an increasingly promotional backdrop could pose risks to margins if conditions worsen.

Regional Conflict Adds Operational Uncertainty

Conflict in the Middle East caused operational disruptions in Emerging Markets, with some teams forced into shelters and one franchise store reportedly destroyed. Adidas warned of potential logistics and airfreight complications stemming from the tensions, underscoring that geopolitical risks remain an unpredictable external factor.

Mixed Performance Across Smaller Categories

Not all categories participated equally in the rebound, as Golf slipped slightly and Basketball remained negative through the first three quarters before returning to growth in Q4. Accessories also faced earlier sourcing issues in the U.S., although management said those supply challenges have now been resolved.

Financial Expenses and Tax Rate Volatility

Net financial expenses rose as lower cash balances reduced interest income and hyperinflation accounting in Turkey weighed on results. The tax rate improved from 26.5% to 24.3% in FY25, but management cautioned that tax outcomes remain variable and should be monitored by investors in assessing future earnings.

Guidance Signals Confident Growth Despite External Drags

Looking ahead to 2026, Adidas guided to high single-digit brand growth in local currencies and EBIT of €2.3 billion, built on roughly €650 million of operational improvement offset by around €400 million of combined tariff and FX headwinds. Longer term, the company plans to add about €2 billion of revenue annually in 2027 and 2028, push EBIT margins to at least 10%, and return roughly €1.5 billion to shareholders in 2026 via dividends and buybacks.

Adidas’s earnings call portrayed a business that has emerged from recent turbulence with stronger brands, better margins, and a clearer growth plan, even as external headwinds cloud near-term optics. For investors, the key takeaway is a company leveraging innovation and global breadth to rebuild earnings power, while FX, tariffs, and U.S. execution remain the main watchpoints.