Analysts and investors cheered Adidas AG after the Herzogenaurach, Germany-based firm beat first-quarter estimates, driven by stronger-than-expected gross margin expansion.
The firm’s shares rose 7.5 percent on the news Friday, hitting an all-time high of 85.50 euros, or $111.60. On Monday, they pulled back a slight 0.7 percent on lighter trading volume.
“Accelerating top-line growth in the back half sets up well for continued upside [to earnings guidance],” said Christopher Svezia, analyst at Susquehanna Financial. “[There is] plenty of room for additional operating margin expansion.
Commerzbank analyst Andreas Riemann agreed: “Now that they have the weakest quarter of the year behind them, earnings momentum should continue to increase. Toward the end of the year, they should also benefit from the 2014 World Cup.”
Adidas CEO Herbert Hainer said in a conference call with analysts last Friday that the firm is off to good start in 2013, thanks to well-managed inventories, which declined 2 percent on a currency-neutral basis.
“Given the health of our inventories in the market and the continued desirability of our brands, we now expect to achieve the upper end of our gross margin guidance of 48 percent to 48.5 percent. This further underpins our operating margin target of approaching 9 percent for the year,” he said.
Hainer provided color on how Adidas is trying to gain market share in the U.S.
“When you look to our footwear business and the market shares, we are enjoying a nice run there with a lot of different products we brought to the market. You can see on the one hand our Originals business [is performing well] in the Foot Locker stores. On the other hand, our basketball product, starting with the AdiZero Crazy Light and now the Crazy Quick, definitely has a good presentation [at Finish Line], and this will continue,” he said.
He added: “At Dick’s we are building now a big shop-in-shop concept … in a lot of their stores. As we say here, Rome was not built on one day, but we are making improvements day-by-day, months-by-months and quarter-by-quarter in the U.S.”
The Reebok brand also is seeing improvements, according to Hainer. The first quarter was in line with management’s expectations, while the current quarter marks the completion of the challenging comparisons resulting from the end of the NFL contract. The brand is expected to return to growth in the third quarter.
“We will bring most of our new introductions for back-to-school, especially on the footwear side. And we definitely believe we will see an acceleration in the third quarter,” said Hainer.
For the first quarter ended March 31, Adidas’ net income gained 6 percent to 308 million euros, or $406.8 million. Revenue, on a currency-adjusted basis, was flat at 3.75 billion euros, or $4.95 billion. Gross margin improved 2.4 percentage points to 50.1 percent.
By region, greater China posted the strongest sales gains, of 6 percent, followed by Latin America with 4 percent; 2 percent in North America and 1 percent in Europe’s emerging markets. Sales in the group’s largest region, Western Europe, fell 7 percent, pressured by declines in Spain, Italy and the U.K. Other Asian markets posted a 10 percent drop, dragged down by Japan.