Adidas guidance warning ‘will spook many’

By Sam Boughedda

Jefferies analysts downgraded Adidas AG (ETR:) (OTC:) to Hold from Buy, raising the firm’s price target on the stock to €150 from €140 per share following the guidance cut on Thursday.

Adidas published its 2023 guidance yesterday, stating that it has accounted for a “significant adverse impact” due to unsold Yeezy stock. The company revealed it could lose approximately €1.2 billion ($1.3 billion) in 2023 revenue if it cannot sell its existing Yeezy stock.

Analysts said it is “no longer easy just to close your eyes.”

“In recent weeks ADS’ mgmt changes had helped investors look through a deeper 2023 trough. And new collabs appeared to have hit the spot, hinting at much more effective levers on which to build demand,” the analysts wrote. “But tonight’s confirmation of an even deeper 2023 trough, whilst needed for a faster profit rebuild, will spook many.”

Analysts suspect the “deeper trough” will allow Adidas to clear non-Yeezy stock across channels more aggressively and that the announcement yesterday seemed to be about more short-term pain “to arrive at a better functioning, higher full price sales model in a quicker way.”

“The disconnect between operational delivery and exceptional cash distribution will likely see ADS close 2022 with a slight net debt position. And sees us assume no DPS proposal for either 2022 or 2023. With the shares strongly rebounded from the Nov troughs, and given the challenges in articulating the mid-term profit delivery, we cut to Hold and slightly up PT to €150 as we roll valuation forward to 2025,” the analysts concluded.