Adidas on Wednesday reported that third quarter currency-neutral revenues rose 8% or 3% to €5.87 billion from €5.68 billion last year ($6.72 billion from $6.5 billion, respectively, in U.S. dollars). Top-line sales were driven by double-digit growth in direct-to-consumer revenues with particular strength in e-commerce, where revenues grew 76% in the quarter, according to a company press release.
By brand in the quarter: Adidas revenues rose 10%, driven by double-digit growth in sport inspired and high-single-digit growth in sport performance, especially training and running. Reebok revenues fell 5% as double-digit growth in classics was more than offset by declines in training and running.
Gross margin in the period rose 1.4 percentage points to 51.8%, thanks to improved pricing, channel and category mix and lower sourcing costs. Operating profit rose 13% from last year, the company also said. Net income from continuing operations was up 19% to €656 million.
Marketing helped drive an explosion in digital sales at Adidas, but the brand still faces pressure on its sales.
Despite ongoing challenges from currency exchanges, Adidas boosted its guidance for full-year profits, now expected to rise between 16% and 20%. The company expects revenue to grow between 8% and 9%, which is on the low end of previous guidance due to lower-than-initially-expected growth in Western Europe.
The expected profit boost is all well and good, but sales are under pressure, according to Wedbush analysts Christopher Svezia and Paul Nawalany. "While adidas Group posted another beat driven by gross margin and raised the FY18 outlook for profitability, multiple expansion may not be 'YEEZY' without sales acceleration, particularly in Western Europe," they wrote in comments emailed to Retail Dive, referring to the company's partnership with Kanye West's Yeezy brand.
The company's e-commerce growth and margin expansion were good surprises, they said, noting that the company has made significant improvements "through more integrated marketing (social media, influencers, and more) and improved product development and management."
But its past success will begin to hurt its comparisons, and the company faces "Nike's resurgence, [currency headwinds] and a more challenged European market," according to Wedbush.
The results come as a downbeat in sneaker sales that appeared earlier this year threaten to continue into the holidays, according to a report emailed to Retail Dive from Matt Powell, The NPD Group Vice President, Senior Industry Advisor of Sports. "At the moment, I see no catalyst to drive overall sales back into the positive column for holiday," he said. "Adidas sales went negative for September and I anticipate this will remain so for the balance of the year. Nike, Brand Jordan, and Converse sales were down for the month as well. Without growth from these major brands, the athletic footwear market cannot grow."
Smaller brands and women's sneakers are poised to do better, though, according to Powell. "Vans, Puma, Reebok, Fila, and Brooks are all outperforming the market," he said. "Small is the new big, and I expect these brands will be popular and perform well this holiday."