Adidas 1Q26 Immediate Call Postmortem
Of course Adidas starts the call off by talking about breaking the two-hour marathon barrier. The shoe is already reselling on StockX at $5,000. Not wasting any time capitalizing on this - documentary goes live tomorrow but they gave us a sneak peak on the call.
Only region that might have been disappointing this quarter is Emerging Markets but they blamed the conflict. All other regions solid – particularly that 12% cc growth in North America.
DTC up 19% and wholesale up 8% - not a strategy that DTC should grow faster than wholesale but illustrates the brand is very strong (Nike would certainly like that).They would like less volatility in wholesale though.
Bjorn made point to say 4% growth in footwear is not weak. Rather there are too many promotions in the industry, especially in lifestyle (shots fired at Nike!). Performance taking off though (+29%): running (+28%, before success London) and soccer (+49%). Basketball down 20% which isn’t encouraging: Bjorn said basketball culture isn’t strong right now (eh…). Bjorn very excited about performance innovation pipeline in both footwear AND apparel (Climacool, Techfit, etc) – hosting an investor day in September at the Home of Innovation to show everyone why they are excited.
Must admit not so excited about the apparel product highlighted – lace, denim, polka dots. However, Adidas always pushed into the fashion side a lot more than peers historically.
Bjorn dropping the word “bullshit” to describe rumors that Adidas will move its headquarters out of Herzog. You really have to like this guy.
“We operate in a volatile environment” slide has news articles about Lululemon stock down 13% on new CEO announcement and Nike laying off 1,300 employees. Talk about shots fired!
No change to guidance, either this year or in 2027 and 2028. Sherman asked about the HSD revenue algo in Q&A as that implies continued share gains for five years in a row (likely due to the Matt Boss Nike algo math of MSD from a few weeks back). They just said they built the algo from bottom up and are excited about pipeline of innovation. Disagrees with idea that sneakers are losing popularity, particularly because the fastest growing markets don’t have same trends as the West. Sees a huge opportunity in walking and the comfort area even though other people may consider that boring.
The sold $250 million of World Cup product in 1Q and expect the same in 2Q. However, there is a lot of lifestyle product that they expect to sell in addition to this given the overall halo of the sport. Continue to say they not worried about the comparison next year as the sales will just shift to lifestyle or other product in future. I think people are going to continue to be skeptical of that but to be fair the rest of the business seems quite strong right now so this isn’t the same company you saw with the last World Cup.
They were late to running lifestyle but now they have three “beautiful” things: Adizero SL – huge money bringer, introducing Hyper Boost – most comfortable foam, success in high end running product.
Kolb asked a necessary question about cost inflation. No doubt oil is driving conversations on materials, components, and transportation. They haven’t yet seen any increase on product prices yet as they negotiate this way up front. Air transportation was going through the Middle East. Were just chatting with their factories in Vietnam a few weeks ago about this and working with them to find solutions. Should have more information in the next 4-8 weeks.
Lost around $30 million of sales in the Middle East, largely last month. Could lose $100 million of sales in 2Q. Could easily be $50-$60 million loss of profit should the conflict persists. Bjorn cautioned us to not use these numbers in a model though as sounds like he was talking in generalities (everyone still going to use them buddy!). Middle East overall is just LSD of total business.
I liked the Krankowski question about wholesalers seeing the strength in DTC and could bump up reorders as result. Not pressuring wholesalers to take on inventory because they don’t have to given the strength in DTC to begin with. Overall, there is so much uncertainty in the world so simply expect wholesalers to remain conservative.
Monique asked a banger of a question on the price sensitivity of recycled poly to underlying spot oil prices. Leave it to the Europeans to think about the environment! There should not be any price advantage as they tend to move together – could even be the opposite as everyone else chases alternatives.
*These are our unabridged quick thoughts and notes from the call. We get them out as soon as possible after the call ends. Management has given some topics to dig deeper into and will circle back afterwards with much more in depth work on what was mentioned. You can find that work (and more on Adidas and other retail/consumer research) at our website here: M Squared Capital
Originally posted on X and Substack.