Adidas (CBOE: ADS), the world’s No. 2 athletic footwear and apparel maker after Nike (NYSE: NKE), is on the rebound after a myriad of woes over the past few years.
The Germany-based company reported a revenue increase of 2% in the fourth quarter from a year ago. But the gain was a lofty 11% after stripping out currency effects. Operating profit more than doubled. And the gross margin rose 1 percentage point to 50.8%.
That came “despite external headwinds, reflecting continued full-price focus against a promotional marketplace backdrop,” the company said. The “external headwinds” include U.S. tariffs and a strong euro, which makes Adidas’ foreign sales worth less in its home currency.
As for the “full-price focus,” Morningstar analyst David Swartz says that’s a key advantage for the company. “Adidas achieves high pricing on many products, supporting our view of its brand power,” he wrote in a commentary. “While Adidas sells products at many price points, its leading items are generally priced higher than those of most” competitors.
Still, the company has its doubters. The stock has dropped 17.2% year to date and 51% over the past five years.
Falls short of forecasts
It was hit hard by Adidas’ lower-than-expected forecast last week for operating profit this year. It projects 2.3 billion euros ($2.8 billion), including a 400 million-euro hit from tariffs and currency moves. That’s well below the Visible Alpha consensus estimate of 2.72 billion euros.
But the company projection still represents a 12% increase from the 2025 total of 2.06 billion euros. And Adidas tends to underestimate its earnings at the beginning of the year.
Tariffs and currency fluctuation are transitory influences, Swartz says. “Investors’ concerns about slowing growth, higher inventories (up 17% at year-end ahead of the 2026 World Cup), and competition are overblown,” he wrote.
“Adidas appears to have a strong product lineup with important advertising events upcoming. We think marketing spending (12.4% of sales in 2025) will remain high, and we consider it a useful expense to support Adidas’ new products and brand health.”
Turning back the page, the company’s problems included competitive pressure, an inventory glut and, most prominently, the collapse of its partnership with Ye (Kanye West).
The Yeezy saga
Adidas began selling Yeezy shoes in 2015, and sales (including apparel and accessories) reached $1.7 billion by 2021, representing about 10% company sales. But then in October of 2022, Ye made a series of anti-Semitic remarks. Adidas cut ties, leaving itself with $1.3 billion worth of unsold Yeezy inventory. The company sold its last pair of Yeezy shoes in 2024.
But now things are looking better. “Under CEO Bjorn Gulden, Adidas’ recovery from the loss of Yeezy and other challenges is ahead of schedule,” Swartz said. Other analysts and investors also have sung the praises of Gulden, former CEO of Puma (CBOE: PUMD) and Pandora, who took over Adidas in 2023.
He has refocused the brand on its athletic roots and classic styles. The athletic roots include soccer (football) and running, a category that enjoyed a 29% sales increase last year. The classic styles include Samba and Gazelle sneakers, which were big hits in the 1960s and ‘70s.
Adidas just extended Gulden’s contract until 2030. “This is a clear positive,” Swartz said. “Gulden has guided the company to a strong comeback over the past three years, while rivals Nike and Puma have struggled.”
Analysts see China as a particularly ripe opportunity for Adidas. It’s the world’s No. 2 athletic apparel market after the U.S., with a soaring middle class. Swartz predicts Adidas’ sales in Greater China will hit 6 billion euros in 2030, up from 3.5 billion euros in 2024.
So it looks like the company is running fast in the right direction.
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