adidas AG (OTCQX:ADDYY), the sports clothing retailer, jumped close to 5% in trading on Wednesday after it upped full-year sales and profit guidance as the group tries to navigate through a tough period, marred by its failed collaboration with rapper Kayne West.
Underlying operating profits for the full year are expected to reach €100 million for the 2023 financial year, with the German retailer having previously expected to only break-even during the period, a trading update revealed.
Part of the tailwinds helping the group include the sale of Yeezy stock. It was stuck with a surplus of Yeezy stock after cutting ties with creator Kayne West after his anti-semitic remarks.
Undergoing two Yeezy ‘drops’ during the second and third quarters, Adidas now expects the write-offs to be around €300 million rather than €400 million, resulting in an operating loss of around €100 million, down from €450 million.
Analysts at Stifel reckon the group’s latest guidance hike is part of the plan of chief executive officer Bjorn Gulden, who delivers on a “guide low/ beat and raise communication strategy”.
The London-based broker believes even the new guidance is slightly conservative and sees scope for more upgrades before reporting fourth-quarter updates.
Despite this, the fashion group’s underlying performances have been impressive, beating analysts’ consensus and looking strong in its targeted midterm recovery.
Details on earnings from the third quarter will be released on 8 November but Adidas already confirmed sales slipped by 6% to a little under €6 billion and operating profits fell to €409 million from €564 million.
Stifel rates the stock a ‘hold’ and targets a €150 share price, with Adidas shares currently trading at around €180.