Reassessing Adidas' Momentum: Can New Franchises Sustain Growth Amid Q2 Concerns?

Adidas AG (ADDYY) has long been a symbol of athletic innovation and cultural relevance, but its 2025 journey is defined by a delicate balancing act. The company's Q2 2025 results—12% currency-neutral revenue growth to €5.95 billion, driven by double-digit gains in Running, Training, and Originals—highlight its resilience. Yet, beneath the surface, challenges loom: FX headwinds, U.S. tariff risks, and the absence of Yeezy's legacy revenue. This article evaluates whether Adidas' strategic product transition and regional momentum can offset these risks, and whether its valuation justifies a bullish investment case.

Strategic Product Transition: From Yeezy to Adizero

Adidas' 2025 product strategy is a masterclass in reinvention. The phase-out of the Yeezy collaboration, which contributed €650 million in 2024, has been replaced by a diversified pipeline of high-performance and lifestyle franchises. The Adios Pro Evo and Boston 13 running shoes, for instance, have driven a 30% surge in the Running category, while the F50 Sparkfusion football boot and Superstar relaunch (featuring Samuel L. Jackson and Missy Elliott) have revitalized the Lifestyle segment. These launches are not just incremental updates but strategic bets on technical innovation and cultural resonance.

The company's focus on localized relevance further strengthens its position. In Greater China, Japan, and South Korea, Adidas has tailored product lines to reflect regional tastes, such as the football-themed Samba pack and the Taekwondo Mei ballerina silhouette. This “global brand with a local mindset” approach has fueled 11% growth in Greater China and 15% in Japan/South Korea, despite Europe's softer performance due to the absence of UEFA EURO-driven sales.

However, the risks of underperformance are real. If the Adizero or F50 franchises fail to maintain their momentum, or if retro-inspired designs like the SL72 or Goukana lose traction, Adidas could face inventory overhangs and margin compression. The company's reliance on high-margin, full-price propositions—while beneficial for gross margins—also limits flexibility in discounting, a potential vulnerability in a cost-conscious consumer climate.

Regional Resilience: North America and Emerging Markets as Growth Engines

Adidas' regional performance in Q2 2025 underscores its ability to adapt. North America, its largest market, grew 15% (8% including Yeezy), driven by strong DTC sales and a 9% e-commerce increase. Emerging Markets, including Latin America and India, delivered 14% growth, while Japan/South Korea added 15%. These gains are critical, as they offset Europe's 7% growth (down from 12% in Q2 2024 due to the absence of UEFA EURO events).

The company's DTC strategy—own retail and e-commerce—has been a key differentiator. Despite a 3% decline in e-commerce when including prior Yeezy sales, Adidas' focus on full-price digital propositions has improved sell-through rates. This aligns with broader industry trends, as consumers increasingly prioritize convenience and brand loyalty over price sensitivity.

Yet, U.S. tariffs remain a wildcard. Adidas estimates these could add €200 million in costs for the remainder of 2025, potentially squeezing gross margins (which expanded to 51.7% in Q2). While the company has reduced freight and product costs to mitigate this, any further escalation in trade tensions could erode profitability.

Valuation and Investment Thesis: Is the Bull Case Justified?

Adidas' valuation metrics present a mixed picture. The stock trades at a trailing P/E of 25.21 and a forward P/E of 21.60, with a 1-year target price of $131.86 (a 35% upside from its current $97.80). Analysts project FY2025 earnings of $4.33 per share, reflecting confidence in the company's margin expansion and regional growth. However, the PEG ratio is problematic: a 5-year EBITDA growth rate of -8.90% renders it inapplicable, and the stock's 5-year return of -33.40% lags behind the DAX index.

The company's debt-to-equity ratio of 98.58% and levered free cash flow of $781 million TTM suggest a balanced capital structure, but investors must weigh this against macroeconomic risks. If Adidas' new franchises underperform, or if tariffs and FX headwinds persist, the stock could face downward pressure. Conversely, successful execution of its “Own the Game” strategy—prioritizing brand credibility, digital engagement, and localized innovation—could unlock value.

Conclusion: A Calculated Bet on Resilience

Adidas' 2025 momentum is underpinned by a robust product pipeline, regional diversification, and a disciplined approach to margin management. While risks like U.S. tariffs and franchise volatility exist, the company's strategic agility and strong brand equity position it to navigate these challenges. For investors, the key question is whether the current valuation reflects both the risks and the potential.

Investment Recommendation: Adidas' stock offers a compelling case for those willing to tolerate near-term volatility. The company's focus on high-growth categories (Running, Football, and Sportswear), combined with its regional expansion and digital transformation, supports a bullish thesis. However, investors should monitor Q3 and Q4 performance, particularly in North America and Emerging Markets, to gauge the sustainability of its momentum. A long-term hold is advisable, with a target price of $131.86 and a stop-loss at $85 to mitigate downside risk.