Shares of Adidas AG (DE:ADS) (ADDYY) jumped 3.3% on August 4 after the sportswear giant reported strong second-quarter results despite higher supply chain costs, COVID-19 lockdowns in China and the suspension of business in Russia.
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Robust momentum in Western markets and a return to growth in the Asia-Pacific region drove the Q2 results. However, due to the ongoing challenges, management trimmed its FY2022 outlook.
Q2 Numbers
Adidas reported adjusted earnings of €1.88 per share, which was slightly lower than the €1.93 per share reported for the prior-year period.
Positively, revenues jumped 10.2% to €5.6 billion compared to the prior-year period, driven by robust momentum in Western markets.
Negatively, however, gross margin decreased by 150bps to 50.3% during the quarter due to increased supply chain costs.
FY2022 Outlook
Based on the slower-than-expected recovery in China, management lowered financial guidance for FY2022.
The company now forecasts net income from continuing operations to be around €1.3 billion, versus the previously guided lower end of the €1.8 billion to €1.9 billion range. Currency-neutral revenues are now forecast to grow at a mid-to-high single-digit rate versus the prior guided growth range of 11% to 13%.
Adidas CEO’s Comments
Adidas CEO, Kasper Rorsted, commented, “Our Western markets continued to show strong momentum in the second quarter amid heightened macroeconomic uncertainty. With Asia-Pacific returning to growth, markets combined representing more than 85% of our business grew at a double-digit rate,”
Furthermore, commenting on the difficult macroeconomic environment, particularly in China, he added, “The recovery in this market is – due to continued covid-19-related restrictions – slower than expected. And we have to take into account a potential slowdown in consumer spending in all other markets for the remainder of the year.”
Wall Street’s Take on Adidas
Following the results, RBC Capital analyst Piral Dadhania decreased the price target on Adidas AG to €190 (from €205) and reiterated a Buy rating.
The rest of the Wall Street community is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 10 Buys, 10 Holds, and three Sells. The average Adidas price target of €203.19 implies 14.3% upside potential to current levels.
Adidas’ TipRanks Smart Score
Meanwhile, Adidas scores a 6 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock is likely to perform in line with market expectations.
Key Takeaway
It was encouraging to see strong Q2 results on the back of double-digit growth in key categories like Football, Running and Outdoor.
However, the lowered guidance indicates that the recovery is around the corner for Adidas, but may take longer-than-expected due to slower recovery in China.
