Adidas stock trades firm as investors weigh recent margin gains and guidance

Adidas stock, backed by the German sportswear group Adidas AG (ISIN DE000A1EWWW0), has been supported in recent months by improving profitability and renewed sales momentum following its post-pandemic restructuring and Yeezy-related inventory clean-up. As of 16 May 2024, according to market data reported around the companys first-quarter update, Adidas shares were trading in the low EUR 200s on Xetra, reflecting a notable recovery from levels near EUR 130 seen in mid 2023 and underscoring the markets response to stronger operating performance.

Revenue up double digits in Q1 2024

According to Adidas investor communications on its website, the company reported that in the first quarter of 2024 its net sales increased at a double digit rate compared with the same period of 2023. While detailed regional breakdowns may vary, management highlighted that key categories such as running, football and lifestyle contributed to the rebound, supported by more disciplined inventory management and renewed demand in Western markets. In addition, Adidas indicated that its direct to consumer channels, including e-commerce and own stores, grew faster than wholesale partners in Q1 2024, helping mix and margin.

In its prior full year 2023 reporting, Adidas described how it moved from a difficult year marked by the termination of the Yeezy partnership to a more stable footing heading into 2024. Revenue in 2023 was broadly flat to slightly down versus 2022 on a currency neutral basis, as the company absorbed a one time impact from Yeezy inventory write downs and a weak demand environment in parts of North America. However, management emphasized that excluding Yeezy, the underlying business showed mid single digit growth, particularly in performance categories and in markets such as China that were beginning to recover.

Gross margin improves by several percentage points

One of the key pillars supporting Adidas stock has been a visible improvement in gross margin between 2023 and early 2024. In its full year 2023 results, Adidas noted that gross margin improved by around 1.4 percentage points compared with 2022, helped by lower supply chain costs, reduced discounting and a more favorable product mix. This improvement came despite the negative impact from Yeezy related write downs, indicating that core operations were becoming more efficient.

Building on that, the company signaled in its first quarter 2024 update that gross margin had strengthened further, rising by several percentage points compared with the prior year quarter. Management attributed this to healthier inventory levels, lower freight costs and better pricing discipline across footwear and apparel. For investors, this trend matters because every percentage point of gross margin expansion can translate into a material uplift in operating profit, given the scale of Adidas global sales.

Operating margin also showed a recovery trajectory. In 2023, Adidas reported an operating margin in the low single digits, down sharply from historical high single digit percentages due to the Yeezy exit and restructuring charges. However, guidance for 2024 pointed to a gradual normalization, with the company aiming for mid single digit operating margins as cost savings, lower extraordinary items and improved gross margin filter through the income statement. This shift is central to the investment case that underpins current Adidas stock levels.

Guidance for 2024 and quantified comparison

Adidas provided quantified guidance for 2024 in its investor presentations, indicating that it expects currency neutral revenue growth in the mid single digit range compared with 2023, excluding significant Yeezy impacts. The company also outlined an expectation for operating profit to improve from close to breakeven in 2023 to a positive figure in the hundreds of millions of euros in 2024, driven by higher gross margin and lower one off costs. This marks a stark comparison versus the prior year, when the company posted only a very small net profit due to the extraordinary inventory related charges.

In terms of net income, Adidas reiterated that 2023 was a transition year, with reported net profit close to zero compared with more than EUR 1 billion several years earlier at the peak of its profitability. The quantified comparison here is important for investors assessing Adidas stock. Returning to a net income figure in the hundreds of millions of euros in 2024, as suggested by guidance, would represent a substantial move away from the near breakeven level of 2023, even if it remains below historical highs.

Cash flow dynamics also improved. In 2023, Adidas reported positive operating cash flow supported by inventory reductions and tighter working capital management, in contrast to pressure seen in 2022 when pandemic related disruption and excess stock weighed heavily. By early 2024, management highlighted that inventories were down significantly compared with the prior year, freeing up cash and reducing the need for heavy discounting. This operational change is another factor supporting Adidas stock, as healthier cash generation improves balance sheet flexibility.

Footwear and apparel product momentum

Adidas is best known for its footwear and apparel lines, including running shoes, football boots, lifestyle sneakers and athletic clothing. In recent quarters, the company has emphasized that performance categories such as running and football are delivering robust growth, supported by product launches around major sporting events and partnerships with elite athletes and clubs. At the same time, lifestyle offerings leverage the brand heritage in Originals and collaborations, which remain important for attracting younger consumers.

The company has also leaned into sustainability, promoting shoes and apparel made from recycled materials. While exact figures vary, Adidas has disclosed that a growing portion of its product portfolio uses more sustainable materials compared with prior years, and it has set medium term targets for the share of such products in total sales. This strategy aligns with consumer trends and can support pricing power, which ties back into the gross margin improvements that investors monitor closely.

Adidas stock and recent market value

On Xetra, Adidas shares trade under the ticker XETRA: ADS, with the company included in the DAX index of large German listed firms. In mid May 2024, as noted earlier, Adidas stock traded around the low EUR 200s, compared with approximate levels in the EUR 130 range in mid 2023 and closer to EUR 300 at peaks several years ago. This places the shares roughly midway between the pandemic era lows and historical highs, reflecting the markets balancing of renewed optimism and residual caution.

Based on market portal estimates around that time, Adidas market capitalization stood in the tens of billions of euros, indicating that the company remains one of the largest players in the global sportswear industry alongside peers such as Nike and Puma. The combination of improving profit metrics, stabilizing revenue and a more disciplined inventory position has been central to the rerating of Adidas stock from its trough levels.