Adidas AG's (ETR:ADS) Stock Is Rallying But Financials Look Ambiguous: Will The Momentum Continue?

Adidas AG's (ETR:ADS) stock has been on a roll, but a closer look at the company's financials reveals a more ambiguous picture. While the stock price has been surging, the underlying financial performance has been less clear-cut. This article explores the trends in adidas AG's financials and assesses whether the current momentum can be sustained.

Adidas AG's net sales have shown a consistent increase over the past two years, rising from €3.991 billion in 2020 to €4.475 billion in 2021, a 12% increase. This growth was driven by a 12% increase in net sales to €4.475 billion, with external revenues generated by adidas Germany and foreign subsidiaries contributing significantly. Other operating income also increased by 34% to €649 million in 2021, primarily due to less positive currency effects. However, other operating expenses decreased by 4% to €2.462 billion, largely due to less currency losses, but partly offset by increased expenses for IT and maintenance costs. Despite these positive trends, adidas AG's operating profit in 2021 was significantly below the prior year level, at €32 million, mainly due to less positive currency effects. The financial result, however, increased by 228% to €1.916 billion, attributable to higher income from dividends and higher profit transfers from affiliated companies under profit and loss transfer agreements. Net income after taxes amounted to €1.850 billion in 2021, a 174% increase from the prior year.



In 2022, adidas AG's net sales increased by 8% to €4,814 million, but other operating expenses surged by 39% to €3,415 million, primarily due to higher currency losses. Depreciation and amortization also rose by 20% to €140 million. These increases contributed to a significant decline in the operating result, from a profit of €32 million in 2021 to a loss of €117 million in 2022. Despite this, the financial result improved by 17% to €2,237 million, driven by higher income from dividends and profit transfers. However, the overall net income was still below the prior year level, at €2,057 million.

Adidas AG's financials present a mixed picture, with net sales and other operating income showing positive trends, but other operating expenses and depreciation and amortization increasing significantly. The operating result has declined, although the financial result has improved. Investors should monitor these trends and consider the potential impact on future earnings.

In conclusion, while adidas AG's stock has been rallying, the underlying financial performance is less clear-cut. The company's net sales and other operating income have shown positive trends, but other operating expenses and depreciation and amortization have increased significantly. The operating result has declined, although the financial result has improved. Investors should carefully evaluate these trends and consider the potential impact on future earnings when deciding whether to continue investing in adidas AG.