Adidas shares suffered their worst single-day decline on record Thursday, falling as much as 19%, after the German sportswear giant reported second-quarter earnings that fell short of analyst estimates. The miss was driven by a 30% surge in marketing expenditure tied to the FIFA World Cup, which overshadowed a record quarterly revenue of €6.7 billion and a 14% currency-neutral sales increase.
Net profit from continuing operations came in at €398 million, up 6% year over year but below the €430 million consensus forecast. The profit shortfall, combined with the company's decision to maintain its full-year operating profit guidance of around €2.3 billion, weighed heavily on investor sentiment.
Record sales fail to lift sentiment
Revenue growth was broad-based, fueled by strong demand for football and running products, as well as continued momentum in Latin America and China. Adidas has been gaining market share in China while rival Nike struggles with declining sales. Clothing sales jumped 35%, driven by the crossover of football apparel into mainstream streetwear, while footwear sales rose a more modest 1% amid a promotional environment for lifestyle sneakers. Demand for the flagship Samba and Gazelle models remained healthy, though CEO Bjørn Gulden acknowledged that explosive growth in those retro styles is unlikely to persist indefinitely.
Despite the top-line strength, investors were disappointed that Adidas did not raise its operating profit outlook. RBC Capital Markets analyst Piral Dadhania noted that both the earnings miss and the unchanged guidance would likely weigh on the stock.
World Cup spending pays off in sales
Adidas generated approximately €1.5 billion in World Cup-related sales during the quarter, selling four times as many national team jerseys and twice as many footballs compared with the 2022 Qatar tournament. Mexico's jersey was the best-selling national team shirt, and the final between Spain and Argentina featured two Adidas-sponsored teams, boosting brand visibility. Gulden defended the aggressive marketing push, saying the company deliberately chose to capitalize on its strong portfolio of teams and products. He added that marketing expenditure would normalize in the coming quarters.
The World Cup investment also benefited from a broader fashion trend, with football-inspired apparel crossing into everyday wear. Meanwhile, Adidas's direct-to-consumer sales rose 25% during the quarter, providing a margin boost despite higher marketing costs.
Guidance remains cautious
Adidas modestly upgraded its full-year sales outlook, now expecting currency-neutral revenue growth of 9% to 10%, up from high-single-digit growth previously. However, it left its operating profit target unchanged at around €2.3 billion, a decision many investors viewed as conservative. Gulden himself suggested the guidance could prove cautious, noting that the company had not assumed its direct-to-consumer business would continue expanding at the current pace.
Deutsche Bank analysts described the results as “a good quarter in absolute terms” but argued that expectations had risen sharply ahead of the World Cup, making it difficult for the company to impress investors.
Analysts see long-term turnaround intact
Not all analysts viewed the sharp sell-off as justified. Writing for Reuters Breakingviews, columnist Jennifer Johnson argued that the market reaction may reflect lingering concerns from Adidas's difficult split with rapper Ye in 2022, rather than current operating performance. She noted that Gulden has engineered a significant turnaround since taking charge, with Adidas delivering shareholder returns that have comfortably outperformed rivals such as Puma and Nike. “A simple way for Adidas to stop the rot would be to show in the next few quarters that the margin dip was a one-off,” she wrote.
For context, the broader market has seen mixed reactions to earnings this season. For example, SoFi stock dropped 9% despite an earnings beat, while Starbucks surged 6% on its beat and raised forecast. In the tech sector, Microsoft soared while Alphabet sank despite strong cloud earnings, highlighting how guidance and market expectations can drive divergent outcomes.
Adidas's long-term target of a 10% operating margin by 2027 remains intact. If the company can demonstrate that the World Cup-related margin dip was temporary, investors may eventually view Gulden's marketing gamble as a triumph rather than a misstep.
This article is for informational purposes only and does not constitute financial advice.
