Key Highlights
Adidas reported its highest-ever revenue for the second quarter of 2026, yet its stock price plummeted by nearly 19% – the issue lies in profits not meeting expectations. Growth mainly came from the World Cup (football jerseys and equipment), professional sports (running and training), and apparel businesses, while the footwear segment saw little growth. The Chinese market was a star performer, with revenue increasing by 15% and profit growth outpacing revenue growth; however, the outlook for footwear is uncertain, and there are concerns about channel expansion. The future success will depend on whether inventory can be sold at full price after the World Cup, whether footwear sales can pick up again, and whether profits can continue to grow.
1. Record Revenue, but a 19% Drop in Stock Price? Profits Lagged Behind
Ordinary people might wonder: With such significant revenue growth, why did the stock price fall? The answer is simple: the capital market focuses on whether the money is actually being made.
Adidas' revenue for the second quarter was 6.743 billion euros (a record high), but operating profit only increased by 28 million euros (about 200 million yuan), far below analyst expectations. The reason is that the additional gross profit (the difference between sales and costs) was almost completely absorbed by increased expenses: marketing costs rose by 30% (due to World Cup sponsorship and pop-up stores), and administrative costs also increased due to more e-commerce orders and additional staff in stores.
For example, if you make a 10-euro profit from selling milk tea, but spend 9 euros on promotions and hiring staff, you only end up with 1 euro left. This is the current situation for Adidas. The capital market expected it to earn more, but since profits didn't increase, it naturally reacted negatively.
2. The World Cup: A Double-Edged Sword
The World Cup had a mixed impact on Adidas:
Positive aspects: It sponsored 14 teams (including the finalists), and all the match balls and referee equipment were its products. Football-related products sold extremely well, reinforcing its image as a professional sports brand. Moreover, this growth wasn't driven by discounts; the direct-to-consumer sales (through its website and stores) increased by 25%, faster than wholesale sales to distributors, indicating that consumers were willing to pay full price.
Negative aspects: The cost of hosting the World Cup was enormous. Marketing expenses rose from over 700 million euros last year to over 900 million euros, and administrative costs increased by more than 200 million euros due to inventory preparation and pop-up stores. The additional gross profit of 463 million euros was almost completely consumed by these expenses, resulting in little increase in profits.
More importantly, Adidas has raised its annual revenue growth target to 9%-10%, but its profit target remains at 2.3 billion euros (analysts previously expected 2.5 billion euros), suggesting that the investment in the World Cup did not lead to higher long-term profit prospects.
3. The Chinese Market as a Profit Stabilizer, But with Some Concerns
The Chinese market is a strong performer for Adidas:
- Highlights: Revenue increased by 15% (953 million euros), with a gross margin of 56% (3.5 percentage points higher than the group average), and operating profit grew by 21%. The reason is less discounting, a better product mix (more high-profit items sold), and lower procurement costs.
Concerns:
- Uncertain Footwear Growth: While the group's footwear revenue only increased by 1%, Adidas has not released specific figures for China. Could this indicate poor sales in the footwear segment?
- Channel Expansion Doubts: Adidas opened 723 FCC stores in third- and fourth-tier cities (under a franchise model). Although Adidas recognizes revenue when agents purchase goods, it's unclear how much of this growth comes from actual consumer purchases.
Overall, the Chinese market has evolved from a risk factor during the pandemic to a profit stabilizer, providing steady profits rather than rapid growth.
4. Transitioning from Bestsellers to Professional Sports
Adidas used to rely on popular casual shoes like Samba and Gazelle for success, but it is now shifting its focus:
- Apparel and Professional Sports Lead Growth: Apparel revenue increased by 35%, and the sports business (running and training) grew by 39%, while footwear only increased by 1%.
- Long-Term Focus on Running: The Adizero series includes top-tier racing shoes for professionals, as well as more affordable models like Evo SL for casual runners and Hyperboost Edge for daily training. This creates a product range that is more sustainable than short-lived bestsellers, supported by technology and specific use cases.
However, the transition is not complete: the European casual shoe market is still offering discounts, and the footwear segment as a whole has barely grown. Professional sports can only partially offset this decline.
5. Three Key Issues for the Future
Adidas' future success depends on these three factors:
1. Can Footwear Sales Recover? If footwear sales do not improve, growth will be limited to apparel and professional sports.
2. Can World Cup Inventory Be Sold at Full Price? Current inventory amounts to 5.969 billion euros (a 13% increase year-over-year), mostly for the current season. Whether these products can be sold at full price after the World Cup is crucial; if discounts are necessary, gross margins will decrease, making it harder to boost profits.
3. Can Profits Continue to Outpace Revenue Growth? In the past, Adidas relied on major events like the World Cup to drive growth, but these events are cyclical. Can it find ways to generate sales without spending so much on marketing in the future?
In summary, Adidas has proven its ability to convert popularity into sales, but it now needs to show that it can turn sales into real profits without relying on major events each time.
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