Investing.com - The German sportswear manufacturer Adidas (OTC:ADDYY) is expected to report robust results for the second quarter of 2024, supported by solid revenue growth in the Terrace product line, significant sporting events, and the Yeezy brand, according to a preview from RBC Capital Markets.
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The Canadian investment bank expects Adidas to achieve group sales of €5.64 billion in the second quarter of 2024, representing organic growth of 8.5%, despite a negative currency effect of 3%. This figure includes an estimated contribution of €150 million from Yeezy. Excluding Yeezy, organic revenue growth for the Adidas brand is projected at 14%.
Key growth drivers according to RBC are the continued momentum of the Terrace product line and significant contributions from major sporting events such as the UEFA European Championship and the Copa America. "The brand and product momentum in the second quarter was overall positive, particularly thanks to Terrace and also due to contributions from the European Championship and Copa America," RBC's report states.
Adidas's gross margin is expected to be 51.7%, an increase of 80 basis points from the previous year, supported by full price enforcement, a favorable channel and product mix, and controlled operating costs, according to analysts. However, the company will continue to invest heavily in marketing, with expenses expected to be around 12% of sales. The report also highlights several one-off factors impacting the year-over-year comparison, such as costs for strategic reviews, Yeezy, and charitable donations.
Regionally, RBC expects the strongest growth in EMEA and Latin America at 15%, followed by Japan/Korea and emerging markets at 9-10%, while Greater China is forecasted to increase by 8%. In contrast, a decline of 2% is expected for North America.
Adidas will release its second-quarter figures on July 31.
RBC's profit estimates for Adidas are optimistic. The EBIT estimate for fiscal year 2024 has been raised by 4%, and the EPS estimate for 2024 by 5%. "Management remains confident that sales trends will accelerate in the second half of the year, which we believe could extend," RBC noted, citing potential growth in the fall/winter range, running products, and apparel.
Overall, RBC maintains its "Outperform" rating for Adidas, with a price target of €250, representing a potential return of 13% compared to the current price of €222.50. RBC considers Adidas's current valuation attractive, pointing to the EV/sales multiple of 1.8x for the calendar year 2024, which is below the sector average of 2.8x and in line with the sector based on the EV/EBIT for 2026.
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