Adidas (ETR:ADSGN) (OTC:ADDYY) shares rose 4% in the European trading session on Wednesday after the sportswear titan released its third-quarter results.
Adidas has now revised its expected loss for this year to €100 million ($106 million), a notable improvement from the previously anticipated loss of €450 million and the even larger loss of €700 million mentioned in February.
This marks the second time this year that Adidas has raised its forecasts ahead of the official results, which are expected on November 8.
Sales of its remaining stock of Yeezy shoes have played a pivotal role in boosting the company's revenue.
“While the company’s performance in the quarter was again positively impacted by the sale of parts of its remaining Yeezy inventory, the underlying Adidas business also developed better than expected,” the company said in a press release.
The German sportswear giant now expects its currency-neutral revenues to decline at a low-single-digit rate in 2023, rather than a mid-single-digit rate as previously projected.
Moreover, the underlying operating profit, excluding Yeezy sales, is anticipated to reach 100 million euros for the year, a significant improvement from the break-even level.
In the third quarter, Adidas reported a 1% increase in currency-neutral revenues compared to the same period in the previous year. The company's revenues experienced a decline of 6%, totaling €5.999 billion (compared to €6.408 billion in 2022).
Adidas managed to improve its gross margin by 20 basis points, reaching 49.3% in Q3 (compared to 49.1% in 2022). However, the operating profit for the quarter was €409 million, down from the previous year's €564 million, resulting in an operating margin of 6.8% (compared to 8.8% in 2022).
Analysts at JPMorgan said the move higher in Adidas stock is justified given the beat-and-raise report.
“Shares should be strong today especially as 1) the beat to JPMe came from the underlying business (not Yeezy); 2) the pre-release was not fully expected by the market, and 3) it should provide further confidence on ADS’s margin target and potentially upside to FY24 estimates,” analysts said.
The broker “continues to see a positive catalyst path ahead, and thus good momentum for the story; consensus upward revisions; and share performance.”
“Full Q3 results (Nov 8th) should still be a catalyst as it will bring a lot more visibility on a) DTC growth vs. wholesale; b) gross margin bridge; 3) developments on inventories; and 4) trends by geography. A potential CMD down the line could also be a catalyst with more details on MT financial goals and product pipeline,” analysts concluded.