Adidas shares drop as 2025 outlook signals slower growth after strong 2024

Investing.com -- Shares of Adidas (OTC:ADDYY) fell by 3% on Wednesday as the company outlined its 2025 profit expectations, projecting operating profit to rise to between €1.7 billion and €1.8 billion, signalling a slowdown compared to 2024, when Adidas staged a turnaround.

The absence of Yeezy-related sales, which contributed €200 million in 2024, along with macroeconomic uncertainties, could weigh on profitability.

The company’s operating profit surged in 2024 to €1.34 billion from €268 million the previous year, benefiting from strong brand momentum and improving market conditions.

"However, we expect Adidas to deliver both revenues and EBIT well above this guidance range, supported by strong brand and product momentum, increased shelf space, consistent execution and competitors still in transition mode," said analysts at RBC Capital Markets in a note.

"We would be buyers on weakness and wouldn’t expect consensus estimates to move down towards guidance level," RBC added.

Currency-neutral sales in 2024 rose 12%, exceeding expectations, while net income recovered to €824 million, reversing a €58 million loss in 2023.

Basic earnings per share climbed to €4.24, up from a loss of €0.67 the previous year. The gross margin improved by 3.3 percentage points to 50.8%, benefiting from lower costs and reduced discounting.

Growth was broad-based across key regions, with double-digit increases in Europe, Greater China, and Latin America.

However, Adidas now anticipates a slower pace of expansion in 2025. While revenue is expected to continue growing at a high-single-digit rate, margin expansion may be constrained by higher marketing and sales investments.

Direct-to-consumer revenue grew 11% in 2024, including a 6% rise in e-commerce sales (or 18% excluding Yeezy), while wholesale revenue climbed 14%.

“We clearly see that consumers’ and retailers’ interest is growing across both Lifestyle and Performance and across all markets," said Bjørn Gulden, chief executive at Adidas, in a statement.

"We also feel good about the future, and we see potential to increase our market share in all markets. I think for 2025 we are in very good shape. I am confident we have the product pipeline and marketing plans to continue to drive brand heat globally."

“Of course, there is a lot of macroeconomic uncertainty right now, but with products that we think are on trend and the attitude of being agile and more local, I cannot see why we should not be successful,” he added.

Adidas’ inventory stood at €4.99 billion at the end of 2024, supporting further sales growth. The company strengthened its financial position, with adjusted net borrowings declining to €3.62 billion, improving its leverage ratio to 1.5x from 3.3x the previous year.

Reflecting its improved financial outlook, Adidas has proposed a dividend increase to €2 per share, up from €0.70.

Adidas remains optimistic about gaining market share, particularly in North America and China, where strong demand for the brand is expected. However, balancing expansion efforts with operational efficiency will be key to meeting its 2025 profit targets amid slowing growth compared to the previous year.

Citi had anticipated a negative market reaction to Adidas’ updated EBIT guidance, which came in 17% below consensus, reflecting investor concerns over profitability.