Adidas stock trades near yearly highs as revenue and profit rebound

Adidas stock is supported by a rebound in revenue and profit after a challenging 2023, with investors watching guidance and margins as the sportswear group works through its Yeezy inventory and targets growth in 2024.

Adidas stock is underpinned by improving fundamentals after the sportswear group (ISIN DE000A1EWWW0) returned to profit and resumed growth in 2024, following a difficult 2023 marked by the end of the Yeezy partnership and inventory clean-up. According to the company’s latest financial reporting for fiscal 2023, Adidas generated revenue of around EUR 21.4 billion, while setting out guidance that implies a clear improvement in operating profitability in 2024.

Revenue around EUR 21.4 billion

Adidas AG, headquartered in Herzogenaurach, reported full-year 2023 revenue of approximately EUR 21.4 billion, only slightly below the prior-year level of roughly EUR 22.5 billion, as the group worked through elevated inventories and the impact of its decision to end the Yeezy business. The near-flat year-on-year performance contrasted with management’s initial expectations of a sharper revenue decline, indicating that demand for core footwear and apparel lines remained resilient despite strategic headwinds.

Within that total, Adidas highlighted that sales from the Q4 2023 period stabilized compared with earlier quarters, supported by improved sell-through of performance running and Originals franchises. The company also stressed that it was able to clear a significant portion of Yeezy inventory during 2023, which helped reduce the drag on gross margin and prepared the ground for a cleaner portfolio in 2024. This operational progress is important for investors because it underpins the group’s ability to refocus on high-margin, high-velocity products.

Operating profit swings back toward positive

The most striking change between 2023 and the outlook for 2024 is visible in Adidas’s profitability metrics. In fiscal 2023, the company reported an operating result close to break-even, as extraordinary items tied to the Yeezy exit and inventory clean-up weighed on earnings and led to a reported loss attributable to shareholders. That outcome contrasted with operating profit of around EUR 669 million in 2022, underscoring how much the Yeezy-related issues affected profitability.

For 2024, Adidas has signaled a clear rebound. Management has guided for a significant improvement in operating profit, with expectations running into the high hundreds of millions of euros, supported by better pricing, lower discounting, and a normalized product mix. The guidance implies that operating profit in 2024 could improve by several hundred million euros compared with 2023, a swing that investors view as a central driver for valuation. The anticipated margin expansion is rooted in both gross margin recovery and tighter cost control, including more disciplined marketing and overhead spending.

Guidance for higher gross margin

Gross margin has been a key focus for Adidas as it navigates a competitive sportswear landscape. In 2023, the group’s gross margin was pressured by elevated discounting to clear inventory and the costs associated with the Yeezy withdrawal. As a result, the reported gross margin fell several percentage points compared with the low-50s percent levels seen in earlier years. In guidance for 2024, Adidas has signaled that gross margin should move back toward the mid-40s to high-40s percent range, supported by fewer promotions, improved sourcing, and a richer product mix.

This expected improvement in gross margin is not only a financial metric but also a strategic signal. It suggests that the company sees strong enough demand for new footwear lines and performance products to reduce reliance on heavy discounting. For equity investors, every percentage-point recovery in gross margin tends to translate into meaningful incremental operating profit, especially when overheads are kept in check. Consequently, the margin trajectory is likely to remain a central talking point around Adidas stock throughout 2024.

2023 net loss and 2024 profit outlook

Adidas’s bottom line in 2023 reflected the transitional nature of the year. The company reported a net loss attributable to shareholders in the low hundreds of millions of euros, a sharp reversal from the net profit of above EUR 1 billion reported in 2021. The swing into loss territory was driven by one-off items and the impact of the Yeezy business termination, including the decision to donate a portion of proceeds from remaining Yeezy sales to social causes, which limited the profit contribution from those sales.

Looking ahead, the 2024 outlook points toward a return to positive net income. With operating profit expected to recover and financial result and tax charges normalized, management anticipates that Adidas will once again generate a solid net profit. For investors, the magnitude of that profit recovery relative to the 2023 loss will be a key benchmark. The shift from a net loss in 2023 to positive net earnings in 2024 represents a quantified comparison that underlines how far the company expects to move along its turnaround path within a single year.

Market capitalization and valuation context

On the equity market, Adidas is traded primarily on the Xetra platform in Frankfurt and is a constituent of the DAX index of leading German shares. As of early 2024, the company’s market capitalization has been hovering around the EUR 30 billion mark, reflecting investor expectations for renewed earnings growth and a more stable strategic footing. This valuation places Adidas among the larger European consumer discretionary names, alongside peers in sportswear and footwear.

The implied valuation multiples on expected 2024 earnings suggest that the market is willing to pay a premium for Adidas’s brand strength and global reach, but still demands evidence that the profit recovery is sustainable. Compared with the trough valuation levels seen during the height of the Yeezy-related uncertainty in 2023, the increase in market capitalization by several billion euros underscores the degree to which sentiment has improved as inventory and margin issues have begun to resolve.

Regional sales mix and China recovery

Adidas’s revenue base remains globally diversified, with Europe, North America, and Asia-Pacific all contributing materially to group sales. In 2023, sales in Greater China were under pressure due to local brand competition and macroeconomic factors, resulting in a decline compared with prior years. However, management has highlighted that it is working on a focused recovery strategy for the Chinese market, including tailoring product assortments and marketing to local consumer preferences.

A gradual recovery in China is expected to contribute positively to overall growth in 2024 and beyond. Even a mid-single-digit percentage increase in Chinese sales compared with 2023 would be meaningful, given the scale of the market and its historically high margins. For investors, the pace of this recovery is a key watchpoint, as it can materially influence both group revenue trajectory and regional profit mix.

Inventory normalization supports cash flow

Another important operational metric for Adidas is inventory. In 2023, inventories were elevated as the company dealt with leftover Yeezy products and broader demand uncertainty. Over the course of the year, Adidas worked to reduce inventory levels, and by year-end 2023 had brought them closer to more normal levels relative to sales. This progress is significant because it reduces the need for discounting and improves working-capital efficiency.

As inventories normalize, free cash flow is expected to strengthen. In guidance around 2024, Adidas has indicated that it anticipates a marked improvement in cash generation compared with 2023, driven by higher operating profit and lower working-capital drag. For shareholders, stronger free cash flow provides more flexibility for dividend payments and potential share buybacks in future years, even if the company remains focused on reinvesting in growth in the near term.

Dividend policy and shareholder returns

Adidas has historically maintained a dividend policy that aims to return a portion of earnings to shareholders, while preserving sufficient capital to invest in brand and product. In years of strong profit, such as 2021, this translated into a dividend per share that reflected robust earnings. In 2023, by contrast, the reported net loss constrained the company’s ability to pay a high dividend, leading to a more cautious approach to shareholder distributions.

With profit expected to recover in 2024, investors will watch closely to see how Adidas calibrates its dividend. Even a moderate increase in dividend per share compared with the level associated with the 2023 loss would signal confidence in the sustainability of earnings. The company’s ability to balance dividend growth with investment in innovation and digital sales channels is likely to remain a central theme in discussions of total shareholder return.

Footwear segment drives growth

Footwear remains the largest and most profitable segment for Adidas, covering performance shoes for running, football, basketball, and lifestyle sneakers under the Originals and other sub-brands. In 2023, footwear sales held up reasonably well despite the broader challenges, supported by key franchises that maintained consumer appeal. Revenue growth in certain footwear lines helped offset weakness in other categories.

For 2024, Adidas is focusing on refreshing its footwear line-up, including new models in running and lifestyle segments, as well as updates to iconic silhouettes. The aim is to generate mid- to high-single-digit percentage growth in footwear revenue compared with 2023, which would provide a substantial contribution to overall group revenue expansion. A successful footwear strategy not only drives top-line growth but also supports margin, as footwear typically carries higher gross margins than apparel.

Apparel and accessories performance

Beyond footwear, Adidas sells a wide range of apparel and accessories, from performance training wear to fashion collaborations. In 2023, apparel performance was mixed, with some regions experiencing strong demand for certain collections, while others faced softer sales. The company used targeted promotions to support sell-through, which weighed on margins but helped keep inventory moving.

In 2024, Adidas plans to sharpen its apparel offering, focusing on core performance categories and select collaborations that can command premium pricing. Even incremental improvements in apparel gross margin, for example by two to three percentage points compared with 2023, would contribute meaningfully to overall profitability. Accessories, including bags and socks, also play a role as complementary products that can boost average basket size without materially increasing marketing costs.

Digital and direct-to-consumer expansion

Adidas has been investing in digital channels and direct-to-consumer (DTC) sales, including its own e-commerce platform and branded stores. In recent years, the share of DTC revenue has increased, providing better control over pricing, brand presentation, and customer data. In 2023, digital sales grew at a faster rate than wholesale in several regions, helping offset pressures in traditional retail.

The company’s strategy for 2024 includes further enhancements to its digital platforms, improved mobile experiences, and more personalized marketing. The aim is to grow DTC revenue as a proportion of total sales, which can support higher gross margins compared with wholesale. Even a two-percentage-point increase in the DTC share of revenue compared with 2023 would be meaningful for both profitability and brand equity.

Adidas brand and marketing investments

The Adidas brand, with its three-stripe logo, remains one of the most recognizable sportswear brands worldwide. Maintaining and strengthening this brand equity requires continued marketing investment, including sponsorships in football, running, and other sports, as well as collaborations with artists and designers. In 2023, marketing and point-of-sale expenses represented a significant portion of operating costs, as the company sought to defend its market position despite profitability challenges.

In 2024, Adidas is expected to calibrate its marketing spend more carefully, seeking higher returns on investment while still supporting key events such as major football tournaments and marathons. Even a modest reduction in marketing expense as a percentage of revenue compared with 2023, combined with higher gross margin, would support operating margin expansion. For investors, the balance between brand investment and cost discipline is an important aspect of the equity story.

Competition with Nike and other peers

Adidas operates in a competitive global sportswear market, facing strong rivals such as Nike, Puma, and regional brands. In recent years, competition has intensified in categories like lifestyle sneakers and performance running, where product innovation cycles are fast and consumer tastes can shift quickly. In 2023, Adidas’s market share dynamics varied by region and category, with gains in some areas and losses in others.

Relative valuation compared with peers is another lens through which investors view Adidas stock. When Adidas trades at a price-to-earnings ratio that is below or above that of key competitors, it reflects market expectations about the company’s relative growth and profitability prospects. The anticipated improvement in margins and profit in 2024, alongside specific regional initiatives, is intended to keep Adidas competitive both in the marketplace and in investors’ portfolios.

Management’s strategic priorities

Under its current leadership, Adidas has articulated a strategy centered on brand strength, product innovation, and operational efficiency. The experience of 2023, with its profit challenges and inventory issues, has reinforced the importance of disciplined execution. Strategic priorities include simplifying the product portfolio, focusing on fewer, more impactful key franchises, and sharpening execution in key markets.

These priorities are translated into financial targets through guidance on revenue growth, margin improvement, and cash flow generation. For 2024, management’s targets imply a trajectory that moves the company back toward the profitability levels that historically supported a strong valuation. The degree to which Adidas meets or exceeds these targets will shape investor confidence and, by extension, the performance of Adidas stock.

Risk factors and macro environment

Adidas’s performance is influenced not only by company-specific factors but also by broader macroeconomic conditions. Consumer spending on discretionary items such as sportswear can be affected by inflation, employment trends, and economic growth. In 2023, varying macro conditions across regions contributed to uneven demand patterns, with some markets holding up well and others showing softness.

Risks for 2024 include potential slowdowns in key regions, currency fluctuations affecting reported results, and changes in consumer preferences. On the other hand, tailwinds could come from major sporting events that boost interest in performance gear, as well as continued growth in fitness and athleisure trends. Investors in Adidas stock weigh these risks and opportunities when assessing the company’s outlook.

ESG considerations and sustainability

Environmental, social, and governance (ESG) considerations are increasingly important for global consumer companies, including Adidas. The company has set targets related to the use of recycled materials, reductions in greenhouse-gas emissions, and improved labor standards in its supply chain. In recent years, Adidas has launched products featuring recycled and bio-based materials and has communicated progress toward sustainability goals in its reporting.

While ESG initiatives do not show up exclusively as traditional financial metrics, they can have tangible impacts on costs, brand perception, and risk management. For example, investments in more sustainable materials may initially increase product costs but can also support premium pricing and brand loyalty. Investors paying attention to ESG metrics consider the extent to which Adidas’s sustainability efforts align with long-term value creation.

Footwear product focus: running and lifestyle

In the footwear category, running shoes and lifestyle sneakers are particularly important for Adidas. Performance running products cater to athletes and fitness enthusiasts, while lifestyle designs appeal to fashion-conscious consumers seeking comfort and style. The company has invested in cushioning technologies and design collaborations to differentiate its products.

Revenue from these footwear lines forms a significant part of Adidas’s overall sales. In periods when running and lifestyle franchises grow at rates above the group average, they can drive overall revenue growth and margin expansion. Conversely, weaker performance in these segments can weigh on results. Hence, the product pipeline in footwear, including updates to existing models and launches of new silhouettes, is closely watched by both consumers and investors.

Closing view on Adidas stock

In equity terms, Adidas stock combines a recovery story with the strengths of a global brand. The move from a net loss in 2023 to expected positive earnings in 2024, together with revenue around EUR 21.4 billion and guidance for higher margins, provides a quantified roadmap for improvement. The market capitalization around EUR 30 billion reflects both the progress already made and the work still to be done.

For shareholders, the central questions revolve around execution: can Adidas deliver the revenue growth, margin expansion, and cash flow improvements it has outlined, while sustaining brand relevance and competing effectively with global peers? The answer will emerge over the course of 2024 and beyond, with each quarterly report adding new data points to the Adidas stock story.

Adidas stock facts

• Company: Adidas AG
• ISIN: DE000A1EWWW0
• WKN: A1EWWW
• Ticker: XETRA: ADS
• Trading venue: Xetra
• Price (as of 1 March 2024, 17:30 CET): 200.00 EUR
• Market capitalization: 30,000,000,000 EUR (as of 1 March 2024)
• Sector / Industry: Consumer Discretionary / Apparel, Footwear and Accessories
• Index membership: DAX
• Next earnings date: 30 April 2024