Adidas (ADSGn.DE) expressed optimism on Wednesday, highlighting the growing interest from retailers in its autumn/winter 2024 collection.
The German sportswear giant is increasing production of popular sneakers like the Samba to meet the surging demand.
Since taking the helm as CEO on January 1, Bjorn Gulden has been steering a turnaround strategy for Adidas.
The company faced challenges following its breakup with rapper Kanye West, also known as Ye, which resulted in unsold Yeezy shoes worth a staggering 1.2 billion euros ($1.3 billion).
Gulden emphasized the significant role of the “terrace” shoe ranges, including Samba, Gazelle, Spezial, and Campus, in driving growth in the company’s lifestyle business.
He attributed the company’s improved full-year outlook, partly to Yeezy shoe sales, and remarked that interest in Adidas products is on the rise across all markets, although current performance still falls short of expectations.
Adidas is grappling with a supply shortage for its terrace shoes, as global demand far outpaces supply. Gulden acknowledged the missed sales opportunities due to this shortage and confirmed the company’s commitment to scaling up production.
Despite expecting a 100 million euro ($106 million) loss for the year, Adidas has come a long way from its February warning of a possible 700 million euro loss stemming from the discontinuation of the highly profitable Yeezy line.
The company’s shares, which have surged by over 30% since the start of the year, experienced a marginal 1% dip in early trading.
Gulden outlined the brand’s strategy to broaden its running range by offering more affordable and comfortable shoes to cater to the growing trend of everyday running shoe wear.
This shift aligns with the approach of its larger U.S. rival, Nike, which is also focusing on the running shoe market.
Robert Schramm-Fuchs, portfolio manager at Janus Henderson, which holds Adidas shares, noted that Adidas is strengthening its relationships with wholesalers, a strategy in contrast to the previous management’s emphasis on the company’s own stores and online operations.
Schramm-Fuchs expressed confidence in Adidas’ ability to regain its shelf space with the right product offerings.
While focusing on wholesale, Adidas faces increased competition from emerging running and lifestyle brands like Hoka and On Running.
Despite these challenges, Adidas saw a 23% reduction in inventory levels to 4.85 billion euros ($5.18 billion), a positive development compared to other apparel and footwear retailers grappling with excess stock and price cuts.
The company’s gross margin for the quarter improved by 0.2 percentage points to 49.3%, thanks to lower freight costs and fewer discounts.
In North America, currency-adjusted sales declined by 8.8%, primarily due to reduced sales to wholesalers, and high inventory levels in the United States are expected to continue impacting the business for some time.
On a more positive note, Adidas reported a 5.7% growth in currency-adjusted sales in Greater China, reflecting the company’s efforts to rebuild its brand in the region after losing market share to rivals.
While Yeezy shoe revenue in the third quarter was somewhat lower compared to the previous year, totaling 350 million euros, Adidas remains confident in its trajectory toward growth and recovery.