adidas Q2 revenue slightly beat expectations, but margins disappoint

Overview

This is Bernstein's review of adidas AG's Q2 results. The report's core conclusion is that revenue was slightly better than expected, especially with strong growth in Performance, DTC, and multiple regions; however, profits came in below expectations, as operating margin and EPS were dragged down by higher marketing expenses, DTC-related delivery costs, and labor costs. The company slightly raised its FY2026 revenue growth guidance but maintained its operating profit guidance.

Core views

The report maintains a positive stance on adidas with an Outperform rating. On revenue, Q2 constant-currency revenue grew 14%, slightly above the 13% consensus expectation, with 39% growth in Performance as the main driver, while DTC was also clearly stronger than wholesale. On profits, operating margin declined 70 basis points year over year to 8.5%, below the 9.4% consensus expectation, indicating that revenue quality and cost leverage were weaker than the market expected. FY2026 revenue guidance was raised to 9%-10% constant-currency growth, but operating profit remains around €2.3bn, reflecting that macro conditions, the European promotional environment, and tariffs still pose pressure in the second half.

Analysis framework

The report evaluates the Q2 results through comparisons with consensus expectations, business segment breakdowns, channel breakdowns, regional breakdowns, and implied full-year guidance calculations. The valuation section uses 20x P/E multiplied by the FY2027 EPS forecast of €12.45 to derive a €245 target price.

Methodology notes

• Earnings comparisonComparison of results with consensus expectations

  Compare Q2 revenue growth, gross margin, operating margin, and EPS with market consensus expectations.

  Revenue slightly beat expectations, but operating margin and EPS were below consensus expectations, indicating that the main issue in this earnings release lies in expenses and operating leverage rather than revenue growth.

• Operating breakdownBreakdown of growth by segment, channel, and region

  Analyze growth drivers from Performance, Lifestyle, product categories, DTC, wholesale, and major regions.

  Performance, DTC, and regions including North America, Greater China, Latin America, and Japan/South Korea provided growth support; Lifestyle and wholesale sell-in in Europe were relatively conservative.

• Valuation methodP/E valuation method

  Apply 20x P/E to the FY2027 EPS forecast of €12.45.

  Bernstein uses this to set a €245 target price for adidas AG.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• adidas AG (ADS.GR)

  Primary covered asset

  Strengths

  Revenue growth slightly beat expectations, with strong growth in Performance, DTC, North America, Greater China, Latin America, and Japan/South Korea; gross margin was above consensus expectations.

  Weaknesses

  Operating margin and EPS were below consensus expectations, with marketing expenses, DTC delivery costs, and labor costs weighing on operating leverage.

  Comparison

  Q2 constant-currency revenue growth was 14%, above the 13% consensus expectation; operating margin was 8.5%, below the 9.4% consensus expectation.

  Risks

  Uncertain European consumption, the promotional environment, tariffs, cost inflation, channel costs, and supplier concentration risk.

• ADDYY

  ADR trading instrument related to adidas AG

  Strengths

  Linked to adidas AG's fundamentals and rating thesis, with the report assigning a target price of 132.50 USD.

  Weaknesses

  Also exposed to adidas's margin pressure and macro uncertainty.

  Comparison

  The target price for ADS.GR is 245.00 EUR, while the target price for ADDYY is 132.50 USD.

  Risks

  ADR pricing may also be affected by exchange rates, liquidity, and the performance of the underlying stock.

Key data

• RatingOutperformBernstein's stock rating on adidas AG.
• Target price245.00 EUR for ADS.GR; 132.50 USD for ADDYYThe price targets disclosed in the report.
• Q2 constant-currency revenue growth14%Above the 13% consensus expectation.
• Performance growth39% ccAbove 29% in Q1 and 27% in Q4, driven by Football, Running, and Motorsport.
• Lifestyle growth2%Below 6% cc in Q1 and 3% cc in Q4.
• Footwear growth1% ccAchieved on top of 9% growth in Q2'25 excluding Yeezy.
• Apparel growth35%Supported by jersey launches.
• Accessories growth20%Growth data by product category.
• DTC growth25% ccE-commerce grew 27%, and own retail grew 23%.
• Wholesale revenue growth6%Affected by a high base in Q2'25 and conservative sell-in in Europe.
• Operating margin8.5%Down 70 basis points year over year, below the 9.4% consensus expectation.
• Gross margin52.5%Up 80 basis points year over year, above the 51.3% consensus expectation.
• EPS€2.10Below the €2.40 consensus expectation.
• FY2026 revenue guidance9%-10% cc growthRevenue guidance was raised versus previously.
• FY2026 operating profit guidance约€2.3bnOperating profit guidance was kept unchanged.
• Tariff impact$250-$300mnMargin guidance does not include this tariff impact.
• Valuation assumption20x FY2027 EPS estimate of €12.45Used to derive the €245 target price.
• CFO changeBirgit Kretschmer will succeed Harm Ohlmeyer at year-endBirgit Kretschmer has 25 years of adidas experience and previously served as CFO of C&A for about 6 years.

Impact & implications

For investors, this earnings release reinforces adidas's revenue recovery and the momentum of the Performance business, but it also exposes margin pressure from DTC channel costs, marketing investment, and tariffs. If revenue momentum continues and expense leverage improves, the Outperform thesis will be easier to realize; if European promotions, U.S. tariffs, or channel costs continue to rise, earnings expectations may remain under pressure.

Risks

• A slowdown in overall sportswear growth, especially after the strong post-pandemic growth base.
• Excessive discounting or over-distribution leading to weaker brand heat.
• Inflation, freight, channel costs, or other operating expense pressures compressing margins.
• Supplier concentration potentially creating supply disruption risks.
• Uncertainty in the European consumer environment and intensified promotional activity may weigh on wholesale sell-in and margins.
• U.S. tariff impact is about $250-$300mn, and FY2026 margin guidance does not include this impact.

What to watch

• Further commentary on the Q2 earnings call regarding marketing investment, DTC costs, tariffs, and H2 demand.
• Whether the Performance business can continue to sustain high growth, especially in Football, Running, and Motorsport-related product lines.
• Whether Lifestyle growth can improve from low single digits.
• Whether wholesale sell-in in Europe recovers and whether the promotional environment eases.
• Whether DTC growth can continue without further eroding operating leverage.
• Whether the approximately €2.3bn FY2026 operating profit guidance still has room for downward or upward revision.
• Changes in capital allocation, cost control, and communication after Birgit Kretschmer takes over as CFO.