Morning Note: Market news and an update from Adidas.
Market News
Donald Trump called for an end to the $52bn Chips Act subsidy programme and defended his use of tariffs in his 100-minute address to Congress. The President also said he’d received a letter from Volodymyr Zelenskiy saying that Ukraine was ready to negotiate to end Russia’s war and to sign a minerals deal.
Asian shares rose along with US and European futures in a relief rally after Howard Lutnick said the Trump administration may walk back some tariffs on Canada and Mexico.
German 10-year bond yields rose 18 bps to 2.67%, the biggest jump since early 2023, after Friedrich Merz said the country will amend the constitution to exempt defence and security outlays from limits on fiscal spending and set up a €500bn infrastructure fund. Gold trades at $2,920 an ounce.
China’s economic growth target spurred bets of more stimulus. The government reaffirmed its aim for GDP growth of around 5%. They pledged to stabilise the property market and introduce new instruments to strengthen support for stock market. Its fiscal deficit goal is around 4% of GDP, the highest level in more than three decades.
The FTSE 100 is currently 0.5% higher at 8,801. 10-year Gilt yields rose to 4.58%, while Sterling trades at $1.2840 and €1.2020. Brent Crude moved back above $70 a barrel.
Source: Bloomberg
Company News
This morning, adidas released results for 2024 with further detail than that provided with the January trading update. The figures highlighted an improvement in performance throughout the year but guidance for 2025 came in below market expectations. In response the shares have been marked down by 2% in early trading.
adidas is a multi-brand sporting goods company. Its products have traditionally had a broad global appeal from serious athletes, casual athletes to sports fashion, and from mid-price to high-price points. As a result, the group should be well placed to benefit from the continued focus on health and fitness, the rising middle class in emerging markets, and fashion trends in sportswear.
The group’s year-on-year results were impacted by the previous initiatives to reduce inventory levels following the termination of the adidas Yeezy partnership with rapper and fashion designer Kanye West.
In 2024, revenue was up 12% in currency-neutral terms at €23.7bn, ahead of guidance for growth of around 10%, a target that had been raised earlier in the year. Performance reflects the strong momentum of the adidas brand, which increased 13% in 2024. The sale of the remaining Yeezy inventory, which was successfully concluded during the fourth quarter, generated revenue of €650m in the year.
In the final quarter, sales were up 19% in currency-neutral terms at €6.0bn, driven by strong momentum into brand and products. The group has clearly seen that consumers’ and retailers’ interest in its products is growing across both Lifestyle and Performance.
By region, Europe, the company’s largest market, grew by 19% in the year. Sales in North America declined 2% solely due to significantly lower Yeezy sales. Elsewhere, sales were: Emerging markets (+19%); Latin America (28%); Greater China (+10%).
By channel, wholesale grew by 14% reflecting strong sell-throughs and, as a result, significantly increased shelf space allocation. The direct-to-consumer (DTC) business rose by 11%, with e-commerce 6% and own retail 15%.
By category, footwear was the stand-out performer (+17%), driven by strong double-digit growth in Originals, Football, and Training. Elsewhere apparel and accessories grew by 6% and 2% respectively.
The company’s gross margin grew by 330 basis points in the year to 50.8%, mainly driven by lower freight and product costs, a more favourable business mix, and reduced discounting. Operating profit increased from €268m to €1,337m, as expected well above the guidance for €1.2bn.
The group’s balance sheet has strengthened, with net debt falling from €4.5bn to €3.6bn (1.5x net debt to EBITDA). Inventories were up 11% on a currency neutral basis to €5.0bn to support double-digit growth of the adidas brand. The board has proposed a dividend of €2.00 per share, up from €0.70 the previous year, and within the range of 30% to 50% of net income from continuing operations.
Looking forward, there is a lot of macroeconomic uncertainty right now, and the group has issued conservative guidance for 2025. The target is for currency-neutral revenue to increase at a high-single-digit rate, reflecting continued double-digit growth for the adidas brand and for operating profit to increase to between €1.7bn-€1.8bn. This means the company will again make progress towards a 10% operating margin.
Source: Bloomberg