Adidas boosted by Samba and Gazelle shoe sales amid North America setback

Adidas Q1 sales: Adidas' robust first-quarter performance was buoyed by sales growth in its European market, driven particularly by the popularity of its "terrace" shoes like the Samba and Gazelle. However, North America saw a downturn, with sales slipping by 4 per cent, as retailers grapple with excess inventory, the company revealed on Tuesday.

Amid a turnaround journey following a challenging split with rapper Ye that led to the discontinuation of its profitable Yeezy shoe line, Adidas showcased resilience, reporting a loss for the previous fiscal year. Nevertheless, the brand's recent sales success underscores the enduring demand for its terrace-style footwear.

According to Adidas CEO Bjorn Gulden, the lifestyle segment played a pivotal role in propelling sales in the first quarter, with demand for terrace shoes continuing to surge, contributing to a 14 per cent sales growth in Europe. "The demand for our product, especially in footwear, is very, very high in our home market," Gulden stressed during a call with reporters.

Footwear revenue witnessed a notable uptick of 13 per cent overall, signaling a favourable trajectory for Adidas' product portfolio.

Marcus Morris-Eyton, portfolio manager at AllianceBernstein, expressed optimism about Adidas' resurgence, stating, "Adidas has gone from the one no-one wanted to touch to the brand that has all the positive momentum behind it."

Despite a strong performance in Europe and China, where sales rose by 8 per cent, Adidas faced headwinds in North America. The region, its second-largest market, experienced a 4 per cent decline in sales, amounting to 1.12 billion euros ($1.20 billion). Excessive inventory challenges, resulting in price markdowns to clear shelves, contributed to the setback in the US

Analysts highlighted the positive impact of Adidas' inventory management efforts, with a 22 per cent reduction in footwear and clothing inventory compared to the previous year. This, coupled with lower sourcing costs, led to a significant improvement in Adidas' gross margin, surging by 6.4 percentage points to 51.2 per cent. The operating margin also saw a notable increase, standing at 6.2 per cent, up from 1.1 per cent in Q1 2023.

Adam Cochrane, analyst at Deutsche Bank, underscored the company's encouraging performance across geographies, noting, "It is reassuring to see the broad geographic spread of the sales performance, with the US weak as expected but a much stronger Europe."

Looking ahead, Morris-Eyton highlighted Adidas' progress in reducing discounting and stressed the high gross margin potential of terrace shoes, signaling a positive trajectory for the brand's profitability.

(With Reuters inputs.)