HERZOGENAURACH, Germany: Sportswear maker adidas AG has reported that its first-quarter net income attributable to shareholders surged to €558 million from last year’s €31 million.
Further, the company upgraded fiscal 2021 outlook. Sales are now expected to grow at a high-teens rate in 2021 given the healthy brand momentum and stronger-than expected demand for the brand’s products. The company previously expected sales to grow at a mid- to high-teens rate.
In the second quarter, adidas forecasts a significant topline acceleration, with currency-neutral sales expected to increase by around 50%.
Major developments:
Currency-neutral sales up 27%, despite high-single-digit drag from external factors
DTC growth of more than 30%, with e-com up 43% on top of 35% in the prior year quarter
Gross margin up 2.1pp to 51.8% due to healthy inventory position (down 9% y-o-y)
Operating margin improves 12.3pp to 13.4%
Net income from continuing operations reaches € 502 million
Full-year outlook upgraded: sales now expected to grow at a high-teens rate in 2021
“We are fast out of the gate in the first year of our new strategic cycle, with excellent revenue growth, DTC-led sales increases in all market segments and strong profitability improvements,” said adidas CEO Kasper Rorsted. “We upgrade our full-year outlook as we are now even more confident about a strong top-line recovery this year, even though the environment is not yet back to normal. Our strategy ‘Own the Game’ is off to a great start and 2021 will be an important first step in successfully executing against our 2025 ambition.”
Currency-neutral revenues increase 27% with footwear up 31%
In the first quarter, currency-neutral revenues grew 27%. This growth was achieved against the backdrop of prolonged lockdowns in Europe and industry-wide supply-chain challenges, which reduced currency-neutral revenue growth by a high-single-digit rate during the quarter. From a channel perspective, the company’s top-line increase was led by exceptional improvements in direct-to-consumer (DTC) revenues, which were up 31% and accounted for more than one-third of total sales. This development is a direct result of strong sell-through trends, as the brand’s products resonate well with consumers globally. Within DTC, e-commerce again showed particular strength as sales were driven by an exceptional increase in full-price revenues. E-commerce sales rose 43% on top of 35% growth in the prior year quarter, thereby almost doubling over the two-year period. Globally, revenue growth was strongest in footwear with a 31% increase and driven by double-digit gains in the training, running, outdoor and lifestyle categories. In euro terms, the company’s revenues grew 20% in the first quarter to € 5.268 billion (2020: € 4.381 billion).
Growth in all market segments
The top-line expansion in the first quarter was driven by increases in all market segments. Across the company’s three strategic markets, currency-neutral sales expanded at a triple-digit rate in Greater China (+156%) and increased in the high-single-digits in both North America (+8%) and EMEA (+8%). Revenues were up 18% in Latin America and increased 4% in Asia-Pacific. Out of the market segments, EMEA was most negatively impacted by prolonged lockdowns which decreased the store opening rate in Europe to below 50% in March. The company’s global store opening rate stood at 89% at the end of the first quarter.
Net income from continuing operations reaches € 502 million
The company’s net income from continuing operations increased to € 502 million (2020: € 26 million), while basic EPS from continuing operations reached € 2.60 (2020: € 0.16).
adidas upgrades outlook for full year 2021
Despite adverse impacts from the prolonged lockdowns in Europe, industry-wide supply chain challenges and the geo-political situation adidas has upgraded its outlook for the company’s top-line development in 2021. Given the healthy brand momentum and stronger-than-expected demand for the brand’s products, the company now expects currency-neutral sales to increase at a high-teens rate in 2021. In Q2 specifically, adidas forecasts a significant top-line acceleration, with currency-neutral sales expected to increase by around 50%. This acceleration will be fuelled by an array of innovative product releases, including the first-ever circular Ultraboost that is made-to-be-remade, the arrival of Futurecraft 4D in performance running with the 4D FWD and the further scaling of newly introduced as well as established lifestyle franchises such as Forum and ZX. In addition, major sport events, including the UEFA Euro and the Copa America, will provide a unique stage to tell brand and product stories in front of a global audience.
The company’s full-year gross margin forecast continues to be for a level of around 52.0% (2020: 50.0%), while the operating margin is still expected to increase to a level of between 9% and 10% (2020: 4.0%). Net income from continuing operations is projected to increase to a level of between € 1.25 billion and € 1.45 billion (2020: € 461 million). The company’s profitability outlook continues to include temporary stranded costs related to the intended divestiture of Reebok. In 2021, these costs are expected to amount to around € 250 million on the operating profit level and to impact net income from continuing operations by approximately € 200 million. The medium-term growth outlook is not impacted by these costs as adidas anticipates that only around 30% of the € 250 million will reoccur in 2022 and that by 2023 the stranded costs will be fully eliminated.
Kasper Rorsted said: “Although external uncertainties remain elevated, 2021 will be a successful year for adidas. Our inventories are clean and our pipeline is well-filled with innovative products, which are resonating well globally. The return of major sport events gives us the opportunity to showcase our brand in front of billions of consumers and we look forward to welcoming them back at our stores in all parts of the world. As a result, our revenues will grow even faster than expected this year, driven by strong sales increases in all markets. Overall, we are very confident about achieving our top- and bottom-line ambitions in 2021 and beyond.”
Following the company’s decision to focus its efforts on further strengthening the leading position of the adidas brand and to start a process aimed at divesting Reebok, all income and expenses of the Reebok business are reported as discontinued operations as of the first quarter 2021. For the sake of clarity, all figures related to the 2020 financial year refer to the company’s continuing operations unless otherwise stated. However, a restatement of 2020 balance sheet items is not permitted under IFRS.
