Adidas Shares Crash After World Cup Spending Fuels Earnings Miss

Adidas shares crashed the most on record in Europe after outsized World Cup marketing spending weighed on second-quarter operating profit, overshadowing stronger-than-expected tournament-related sales.

Profit totaled 574 million euros for the quarter ending in June, missing the 616 million euro estimate of analysts tracked by Bloomberg, as an additional 212 million euros in spending offset strong sales growth and disappointed investors seeking better margin expansion.

The German sportswear maker generated 1.5 billion euros in sales, with jersey sales quadrupling and ball sales doubling from the previous World Cup tournament. Adidas raised its full-year currency-neutral sales forecast to growth of 9% to 10%, while maintaining its 2.3 billion operating-profit outlook.

Apparel revenue surged 35%, though footwear was only marginally higher, rising about 1%. European sales increased 6% amid heavy retail discounting.

Deutsche Bank analyst Adam Cochrane wrote in a note that "2Q good but not good enough" ...

Cochrane provided his first take on Adidas' earnings report:

In absolute terms 2Q was a good quarter but against a rising tide of World Cup expectations this is going to disappoint investors. 2Q sales were up 13% to €6,743m (+2% ahead of cons) but EBIT was only up 5% to €574m (-8% below cons). Strong sales and gross profit were more than offset by significantly higher marketing investments. FY26E EBIT guidance has been maintained at c.€2.3bn (cons €2.5bn), with sales guidance upgraded to +9-10% cFX (previously HSD%) although cons is already at +10%.

The bears will point to 1% footwear growth and 6% cFX sales growth in Europe, 6% wholesale growth as well as the implied 6% 2H cFX guide and €1bn in 2H EBIT. The bulls may point to more tariff refunds to come, strong World Cup performance and brand heat as well as the guidance likely being conservative. The change in CFO is unlikely to see any strategic change with the incoming CFO having worked for almost 20 years at adidas previously. We see the shares down MSD-HSD% today on the lack of an earnings upgrade.

Jefferies analysts led by James Grzinic told clients that the earnings miss reflected a sharp rise in costs, which offset any benefits of strong sales and resulted in a "disappointing lack of margin leverage."

RBC Capital Markets analyst Piral Dadhania said, "The miss is due to elevated marketing expenses, which makes for a 'better-quality' result."

The market's verdict on the dismal earnings report was swift: Adidas shares plunged about 17% in Germany, their steepest decline on record.

The selloff erased the stock's pre-World Cup rally, leaving shares down roughly 11% for the year.