Expanding Lifestyle Running With Evo SL And 4D Shoes Will Elevate Brand Appeal

Key Takeaways

• Strategic expansion into popular lifestyle and sports segments is set to boost revenue and reinforce brand positioning through premium pricing and innovative products.
  
• Operational efficiency improvements and regional empowerment initiatives are aimed at enhancing profitability and aligning with market-specific consumer preferences.
  
• Macroeconomic volatility, competitive pressures, and reliance on unstable trends may hinder adidas' revenue growth and profitability amidst currency and trade disruptions.

Catalysts

Designs, develops, produces, and markets athletic and sports lifestyle products in Europe, the Middle East, Africa, North America, Greater China, the Asia-Pacific, and Latin America.

• Adidas is scaling its successful Terrace shoe line, including models like the Samba, Gazelle, and Spezial, to capitalize on high demand and elevate brand heat, which is expected to drive both revenue and margins as they maintain premium pricing.
  
• The company plans to expand into Lifestyle Running, leveraging products like the Evo SL shoe and 4D printed shoes, which are already popular and expected to contribute significantly to revenue growth due to increased production capacity and consumer interest.
  
• Adidas is enhancing its sports marketing presence through strategic partnerships, such as with Mercedes-AMG PETRONAS F1 Team and expanding its reach in smaller sports, which will strengthen brand image and consumer connection, likely boosting future earnings through increased brand loyalty and market penetration.
  
• The company is executing a complexity reduction program by eliminating up to 500 roles at its headquarters, aiming to streamline operations and improve efficiency, which is anticipated to positively impact net margins and profitability.
  
• Adidas is focusing on regional empowerment, allowing local markets to drive decision-making in product offerings and marketing strategies, expected to optimize market-specific revenue growth by better aligning with consumer preferences in diverse regions.

adidas Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming adidas's revenue will grow by 9.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.2% today to 7.7% in 3 years time.
• Analysts expect earnings to reach €2.4 billion (and earnings per share of €13.46) by about March 2028, up from €756.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.4x on those 2028 earnings, down from 53.4x today. This future PE is greater than the current PE for the GB Luxury industry at 13.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.11%, as per the Simply Wall St company report.

adidas Future Earnings Per Share Growth

Risks

• The unpredictability of the macroeconomic environment, including inflation and economic volatility in key markets like the US and Europe, could lead to reduced consumer spending, impacting adidas' revenue growth.
  
• Potential trade disruptions, such as tariff changes or supply chain issues linked to production in Asia, could increase costs and pressure net margins and earnings.
  
• The competitive landscape, particularly with strong rivals in the US market, may limit adidas' ability to increase market share, thereby impacting its revenue and overall growth projections.
  
• Dependency on ongoing product trends, such as the Terrace shoe trend, which may not sustain high growth rates indefinitely, could lead to fluctuations in sales and profit margins.
  
• Adidas’ exposure to currency fluctuations, especially in emerging markets, could create challenges in maintaining stable gross margins and profitability.

Valuation

• The analysts have a consensus price target of €263.957 for adidas based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €300.0, and the most bearish reporting a price target of just €180.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €31.3 billion, earnings will come to €2.4 billion, and it would be trading on a PE ratio of 23.4x, assuming you use a discount rate of 6.1%.
• Given the current share price of €226.3, the analyst price target of €263.96 is 14.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.