Adidas has emerged from the supply chain issues that have plagued it throughout the year no worse for the wear it would seem, as the brand has confirmed a record-breaking full-year outlook as a result of its strong third-quarter performance.
In a Nutshell: Adidas increased its inventory by 14 percent over the comparable period in the third quarter to counter increased demand, particularly for mid-range apparel. Adidas said its stronger inventory position was able to drive sales in the third quarter as its top line recovered. At the time, the brand predicted that it would see a decrease of around 1 percent to 2 percent in terms of growth.
On the downside, Adidas saw its margins shrink by 1.3 percentage points in Q3 as a result of increased air freight expenses and a less-favorable pricing mix. In August, Adidas CEO Kasper Rorsted told Bloomberg that the company was “flying in products from Asia” in order to keep up with demand and expected that to weigh on its margins at the time due to higher logistics costs.
Sales: Total revenue for all Adidas brands reached 6.41 billion euros ($7.1 billion) in the third quarter, growing by 6 percent year-over-year and beating Wall Street expectations of $6.98 billion. Revenue for the Adidas brand was also up by 6 percent on high single-digit growth in its training, running and outdoor categories, which outpaced the mid-single-digit increase for the athleisure styles of its “sport inspired” category.
Reebok sales were up by 2 percent on the strength of its Sport category, which includes most of the brand’s performance silhouettes, many inspired by Adidas designs.
Adidas said its top-line growth was mainly driven by an acceleration in wholesale revenues due to its inventory gains and a 14 percent bump in direct-to-consumer sales, with growth spread evenly across Adidas’ major markets. North American sales grew by 10 percent after months of uncertainty about the brand’s health in the region.
Emerging markets grew by 14 percent, followed by Russia at 13 percent and Greater China at 11 percent. European revenue for Adidas, an area in which the brand has struggled to grow new business in recent quarters grew 3 percent in Q3.
Adidas maintained its revenue outlook of 5 percent to 8 percent growth by the end of the year while predicting “significant sequential top-line acceleration” in Q4.
Earnings: The German company recorded earnings per share from continuing operations of 3.26 euros ($3.61) in the third quarter, an outcome the company deemed “stable.” However, Adidas said to expect net income to increase to between 1.88 billion euros ($2.08 billion) and 1.95 billion euros ($2.16 billion) by the end of the year, an increase of either 10 percent or 14 percent at either end of the range compared to prior-year levels.
CEO’s Take: Rorsted explained that Adidas expected to endure a challenging year, but was proud of the way the company responded.
“I am very pleased with our third-quarter results and the continued progress made in our strategic growth areas, delivering double-digit sales increases at Adidas North America as well as in Greater China and e-commerce,” Rorsted said. “We confirm our full-year outlook and remain confident about a significant top-line acceleration during the fourth quarter. 2019 will be a record year, despite some challenges, and another important milestone toward achieving our 2020 targets.”