Adidas up FY profitability outlook amid "strong" Q3 - Just Style
Join Our Newsletter - Get important industry news and analysis sent to your inbox – sign up to our e-Newsletter here
X

Adidas up FY profitability outlook amid “strong” Q3

By Giacomo Lee 07 Nov 2018

German sportswear group Adidas has increased its profitability outlook for the year on the back of what it called a "strong financial performance" in the first nine months of 2018 and "high-quality growth" in the third quarter.

Adidas up FY profitability outlook amid “strong” Q3

German sportswear group Adidas has increased its profitability outlook for the year on the back of what it called a “strong financial performance” in the first nine months of 2018 and “high-quality growth” in the third quarter.

Net income from continuing operations in the third quarter jumped 19% to EUR656m (US$863m) from EUR549m in the year-ago period, while the company’s gross margin increased 1.4 percentage points to 51.8%, compared to 50.4% last year. This development was driven by an improved pricing, channel and category mix, reflecting the company’s focus on the quality of its top-line growth, as well as lower sourcing costs. These improvements more than offset severe negative currency effects.

The latest set of results saw net revenues climb 3% to EUR5.9bn – a currency-neutral rise of 8% – reflecting a 10% increase at the Adidas brand that was driven by double-digit growth in Sport Inspired as well as high-single-digit growth in Sport Performance; the latter driven by continued double-digit growth in the training and running categories.

During the third quarter, Adidas said its top-line development was impacted by the first-time application of hyperinflation accounting to its Argentinian business, which represented 2% of global sales in 2017. IAS 29 requires that hyperinflation accounting be applied retrospectively from the start of the relevant reporting period, namely from 1 January 2018. As a result, reported revenues were negatively impacted by a high-double-digit million Euro amount. At the same time, hyperinflation accounting had a slightly positive impact on currency-neutral revenue growth.

Meanwhile, revenues at the Reebok brand fell 5% as double-digit growth in Classics was more than offset by declines in the training and running categories. From a channel perspective, the company’s top line was largely driven by “excellent” double-digit growth in direct-to-consumer revenues with strong support from e-commerce, where revenues grew 76% in the quarter.

From a market segment perspective, on a currency-neutral basis, the combined sales of the Adidas and Reebok brands continued to expand at strong double-digit rates in both North America (+16%) and Asia-Pacific (+15%), the latter driven by Greater China (+26%). 

Revenues in Russia/CIS increased 7% as the positive impact from World Cup-related sales still offset the significant amount of store closures during the past twelve months. While revenues in Latin America were flat, sales in Emerging Markets decreased by 2%. Revenues in Western Europe, in line with expectations, declined 1% during the quarter.

“We delivered high-quality growth again in Q3,” said CEO Kasper Rorsted. “The top-line expansion was driven by double-digit increases across our strategic growth areas North America, Greater China and e-commerce. At the same time, we achieved strong profitability improvements despite a significant increase in marketing investments and severe currency headwinds.

“With these results, we are confident to reach a higher-than-expected profitability level in 2018 and remain firmly on track to achieve our long-term targets until 2020.”

Looking ahead, the group has increased its profitability outlook for the year and now forecasts net income from continuing operations to reach between EUR1.66bn-EUR1.72bn, reflecting an increase of between 16% and 20% compared to the prior-year level of EUR1.43bn.

Currency-neutral revenues in 2018 are, however, now expected to grow between 8% and 9%, at the lower end of the communicated range, due to lower-than-initially-expected growth in Western Europe.