Adidas Faces Tariff Crossroads: RBC Adjusts Forecasts Amid Trade Policy Uncertainty

Adidas AG (ETR:ADS) delivered a robust first-quarter performance in 2025, with revenue surging 13% to €6.18 billion, driven by strong demand in emerging markets like Latin America (+27%) and Greater China (+13%). Despite this, the sportswear giant maintained its 2025 financial guidance, citing unresolved U.S. tariff uncertainties that threaten to disrupt its supply chain and pricing strategy. RBC Capital Markets, while reaffirming a Buy rating and a EUR 275 price target, trimmed near-term forecasts to reflect these risks, signaling a cautious outlook for investors.

RBC’s Balanced View: Growth vs. Tariff Headwinds

RBC’s analysis underscores Adidas’s operational resilience but acknowledges the lingering threat of U.S. trade policies. The investment bank revised its 2025 adjusted EPS estimate to €8.32, up from €7.80, citing strong execution in core categories like Lifestyle Running and localized marketing campaigns. However, RBC’s maintained price target reflects a nuanced assessment of risks:

1. Margin Pressures: RBC now assumes lower gross margins due to tariff-driven cost increases, particularly on U.S.-bound goods.
2. Geographic Imbalances: While Europe and Asia-Pacific show momentum, North American sales stagnated at just 3%, hampered by the Yeezy line’s discontinuation and tariff-related uncertainty.
3. Investor Sentiment: Despite the Buy rating, Adidas’s stock dipped 4.06% post-earnings to €1,204.5, with RBC calling it a “lucrative entry point” for long-term investors.

The Tariff Dilemma: Costs, Prices, and Uncertainty

The heart of Adidas’s caution lies in U.S. trade policies. Key issues include:
- China Exports: A 145% effective tariff on Chinese-made goods forced Adidas to shift production to Southeast Asia, but this region now faces its own threats.
- Vietnam and Cambodia: U.S. tariffs on these critical manufacturing hubs exceed 40%, complicating cost management. Adidas produces nearly zero products in the U.S., leaving it exposed.
- Unresolved Negotiations: Tariff rates remain fluid, with potential phased reductions or renewed disputes with China. Adidas warns that U.S. product prices will rise, though it cannot quantify the impact on demand.

The RBC report highlights that tariffs affect ~20% of Adidas’s revenue, with margins at risk if demand softens amid price hikes. CEO Bjoern Gulden emphasized the “impossibility” of quantifying these effects, a stark contrast to the company’s confidence in its operational execution.

Financial Resilience, Strategic Agility

Adidas’s Q1 results demonstrated its ability to navigate challenges:
- Operating Profit: Approached the 10% target (9.9%), up from 8.7% in 2024.
- Regional Strength: Latin America and Greater China drove growth, with Europe rebounding from pandemic lows.
- Brand Momentum: The “halo effect” of hits like the UltraBOOST and collaborations (e.g., Bad Bunny) kept demand strong.

Investor Sentiment: Caution Amid Opportunities

Analysts and investors remain split. RBC’s EUR 275 target implies a 21% upside from current prices, suggesting long-term optimism. However, short-term volatility persists due to:
- North American Recovery: Adidas aims to return to double-digit sales growth in the region but faces headwinds from tariffs and brand recalibration.
- Supply Chain Costs: The company is buffering inventory to mitigate disruptions, but rising expenses could pressure margins.

Conclusion: Navigating Uncertainty with Strategic Leverage

Adidas’s 2025 outlook hinges on two critical factors: tariff resolution and North American revival. RBC’s maintained Buy rating reflects confidence in the company’s ability to leverage:
1. Brand Strength: The Lifestyle Running and Lifestyle categories, which contributed over 60% of sales growth in Q1.
2. Geographic Diversification: Latin America and Asia-Pacific’s high-growth markets offset U.S. risks.
3. Operational Discipline: Gross margins expanded 100 basis points to over 52%, signaling efficient cost management.

While tariffs remain a wildcard, Adidas’s mid-term targets—€1.7–1.8 billion operating profit and high-single-digit revenue growth—are achievable if trade policies stabilize. Investors should monitor North American sales trends and U.S.-China trade talks closely. With a 27% discount to RBC’s EUR 275 target, Adidas presents a compelling opportunity for those willing to bet on its strategic agility outpacing macroeconomic headwinds.