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Adidas affirms FY'19 guidance as Q2 earnings beat estimates

Adidas AG on Aug. 8 posted second-quarter earnings that beat expectations, helped by double-digit sales growth in North America and China, and confirmed its guidance for full year 2019.

In the three months ended June 30, Adidas reported net income from continuing operations of €462 million, up 10.3% from €418 million last year and slightly above the S&P Global Market Intelligence mean consensus estimate for adjusted net income of €461.1 million.

Diluted EPS from continuing operations for the quarter came in at €2.33, up 13% from €2.05 the prior year and above the Market Intelligence normalized EPS estimate of €2.30.

The company maintained its outlook for full year 2019, projecting a 5% to 8% sales growth and a 0.5 to 0.7 percentage point increase in operating margin to a range between 11.3% and 11.5%. Net income from continuing operations is expected to grow between 10% and 14% to a range between €1.88 billion and €1.95 billion.

"We delivered another successful quarter. Sales in our strategic growth areas Greater China and e-commerce continued to increase at a double-digit rate — and so did our bottom line," said Adidas CEO Kasper Rorsted.

The Herzogenaurach, Germany-based company posted €5.51 billion in sales, up 4.7% from €5.26 billion in the same quarter last year with the namesake brand accounting for €5.0 billion of total revenue, up 4.9% year over year.

Sales of the Reebok brand recovered in the second quarter with a 4.7% year-over-year increase to €406 million. The brand suffered a decline in sales in the first quarter of 2019 compared to its prior-year period.

Adidas said sales in its e-commerce channels surged 37% in the quarter, leading to a double-digit improvement in direct-to-consumer revenues.

The company recorded currency-neutral sales increases in almost all markets except Russia, where it saw a 3.9% decline to €171 million in comparison to the prior-year quarter when the FIFA World Cup was held in the country.

Asia-Pacific saw an 8.5% increase in revenues to €1.87 billion, driven by a 14% gain in China, Adidas said. Sales in emerging markets increased 11.9% to €281 million.

Sales in North America climbed 12.1% to €1.21 billion, while sales in Europe inched up 0.1% to 1.42 billion.

In Latin American, Adidas recorded €403 million of sales, up 4.7% on a currency-neutral basis but down 3.1% on a reported basis.

Revenue in its sports performance category declined at a low-single-digit-rate, with a strong decrease in the football category due to nonrecurrence of World Cup-related sales. The company said the decline more than offset the double-digit growth in the training and basketball categories.

Meanwhile, the growth in the company's e-commerce sales came at higher operating expenses incurred for investments into growing the channels. Operating overhead expenses increased 7% to €1.60 billion, while other operating expenses were up 6% to €2.35 billion.

Operating margin improved slightly by 0.4 percentage point to 11.7% during the quarter. The company said higher air freight costs to mitigate supply chain shortages were compensated for by positive currency developments, lower sourcing costs, as well as better product and channel mix.

The company experienced supply chain shortages at the beginning of 2019 following higher demand for mid-price apparels.

Adidas' net cash at the end of the quarter more than tripled to €362 million from €89 million in the second quarter of 2018.

In morning trading, shares of Adidas were down 1.3%, or 3.65, at 269.90 apiece.