Adidas - Update 08/26/2026 - ISIN DE000A1EWWW0

00:00:07: A company reports the highest quarterly revenue in its history, and on that same day it raises its revenue outlook.

00:00:16: Sounds like a reason to celebrate for the company AND its shareholders.

00:00:20: And yet The stock loses as much of seventeen percent.

00:00:23: That's Same Day One Of The Biggest Single-Day Losses In The Company's History.

00:00:27: Record Revenue Better Guidance Still one of the darkest trading days since the IPO.

00:00:33: What does Adidas say To That?

00:00:34: CEO Björn Goulden says, and I quote we're surprised.

00:00:39: We delivered what we promised

00:00:41: And still this steep fall

00:00:43: because that morning the market reacted to something That had been coming for a while.

00:00:47: it's exactly What?

00:00:48: We talk about in every episode.

00:00:50: revenue is glory cash Is truth

00:00:53: and at Adidas those two come apart

00:00:56: as far Apart as rarely before.

00:00:58: and The remarkable thing is It was in the annual report all along.

00:01:02: For anyone hearing us for the first time I'm talking to Warren Wise, an AI technology that analyzes and scores equity stories like a value investor.

00:01:11: Exactly!

00:01:33: Almost everyone has Adidas in their portfolio or in their closet.

00:01:37: A brand fighting to win back its leading position in the

00:01:39: market.".

00:01:40: And since we're often asked, every episode is selected, reviewed and approved by a human editorial team?

00:01:45: The analysis and voices are AI—the responsibility is not!

00:01:50: Today I want to understand... Was the thirtieth of July an excess of panic...?

00:01:54: Or did the markets see something that got lost on the celebratory headlines?

00:01:59: But first for context….

00:02:00: Warren Where does Adidas stand for you?

00:02:03: On a three out of five.

00:02:04: With us, that level is called watch list.

00:02:07: not yet investable

00:02:08: Not Yet.

00:02:09: That sounds like close call.

00:02:11: It's Close.

00:02:12: The Three Is the Threshold.

00:02:14: Below it things get critical Above it Interesting.

00:02:17: And the Survival Test

00:02:18: In my so-called Graham test its only about knockout criteria.

00:02:22: distress crushing debt doubts about balance sheet.

00:02:26: adidas passes that and A rating from Standard & Poor shows too even an upgrade.

00:02:32: So, no drama?

00:02:34: No drama but still only a three.

00:02:36: That's why I'll show you what the market and my report actually saw.

00:02:40: Were the quarterly numbers bad

00:02:42: on revenue?

00:02:43: quite the opposite up thirteen percent in The second quarter six point seven billion euros the best quarter In the company history.

00:02:51: And where is the problem?

00:02:52: one level down.

00:02:53: the operating margin for the quarter was expected by the market to rise To nine point five percent.

00:02:59: instead it declined to eight point five.

00:03:02: Why?

00:03:02: The costs for the World Cup.

00:03:04: Adidas outfitted more than twenty federations plus balls and marketing.

00:03:09: that money goes now, the revenue comes later

00:03:12: And the profit.

00:03:13: Now comes number that probably tipped stock Revenue up thirteen percent.

00:03:18: Operating Profit Up only six.

00:03:21: So profit grew barely half as fast as revenue.

00:03:24: Revenue is growing more then twice as fast As profit.

00:03:28: That's negative operating leverage.

00:03:30: Normally, you want the opposite.

00:03:32: When revenue rises profit should rise faster because part of the costs is fixed.

00:03:38: Here it's other way around like a car burning more fuel The Faster It Goes.

00:03:43: And how was the outlook?

00:03:44: The second blow Adidas raised its Revenue Outlook but left the Profit Target unchanged.

00:03:50: So More Revenue Promised But Not More Profit!

00:03:53: The Market Hears The Extra Growth Is Being Eaten Up By Costs.

00:03:57: Exactly that message And, importantly those are the numbers from the thirtieth of July.

00:04:03: My report is the analysis of The Annual Report for twenty-twenty five and there a related pattern was already visible back in March record on top substance fading underneath.

00:04:15: then let us first weigh up what Was Already Good In The Equity Story?

00:04:19: That's A Lot Because The Recovery Is Real.

00:04:22: Operating Profit For The Full Year.

00:04:24: Twenty-Twenty Five Rows To About Two Billion Euros.

00:04:27: A Strong Jump.

00:04:28: And the margin?

00:04:29: From five point six to eight point three percent.

00:04:32: That's not a baby step, that's a

00:04:34: leap!

00:04:34: So Adidas is almost its old self again...

00:04:37: On revenue yes nearly twenty-five billion more than ever before in the company history.

00:04:43: and on profit

00:04:44: there still a gap.

00:04:45: In The Old Record Year of Twenty Nineteen about eleven cents Of every Euro of Revenue stayed as Operating Profit.

00:04:51: Now it's About Eight.

00:04:53: so the earnings power isn't fully back yet.

00:04:55: So revenue Is Back at Record Level.

00:04:57: Earnings power isn't yet.

00:04:59: And that's exactly the benchmark this comeback wants to be measured against.

00:05:03: The direction is right, the last stretch is still missing.

00:05:07: Did that happen under its own power?

00:05:09: and here I have to be precise.

00:05:11: Part of last year was still carried by Yeezy –the old Kanye West line.

00:05:15: But the core brand carried growth on it's own.

00:05:18: That's an important point.

00:05:20: Currency adjusted, thirteen percent growth.

00:05:22: Double digit in all six regions All six growing together.

00:05:26: And the balance sheet, how does that hold up?

00:05:29: So a

00:05:39: credible comeback after two very hard years.

00:05:42: That sounds like more than a score of three!

00:05:53: Quick word in our own interest since it fits... What you're hearing is the short version.

00:05:58: The full analysis, with all of

00:06:23: What's left at the very bottom for shareholders.

00:06:26: In twenty-twenty five it rose by seventeen percent.

00:06:29: And what actually came in as cash?

00:06:32: Take a guess.

00:06:33: Also double digit, twenty per cent up

00:06:36: Down seventy four per cent.

00:06:37: Wait...in the same year The same company

00:06:40: Same company, same year From nearly three billion down to seven hundred and fifty one million.

00:06:46: My report calls that a striking gap between profit on paper & cash in the bank.

00:06:51: Where did stand for Adidas

00:06:52: The year before?

00:06:53: at one eighteen, more than fully covered.

00:06:55: Excellent!

00:06:56: Now at zero point two

00:06:57: four.".

00:06:58: So of every euro in the books only about a quarter arrives as cash?

00:07:03: Roughly.

00:07:04: and then comes the sentence that makes me sit up free cash flow.

00:07:08: what's genuinely left over was lower than the dividend Adidas paid out.

00:07:12: so the payout is bigger Than What Comes In.

00:07:15: That's like paying my everyday expenses not from My salary but From my savings.

00:07:20: And it's Not an Alarm But it's the kind of number where the coach takes his eyes off the split time and starts watching the runners breathing.

00:07:27: But, Where did money flow?

00:07:29: Into inventory stock rose by eight hundred forty three million euros currency adjusted by twenty-three percent

00:07:36: And revenue?

00:07:37: Grew by barely five.

00:07:39: so inventory is running four times as fast.

00:07:41: sales goods sitting in warehouse are money that isn't working.

00:07:45: The explanation?

00:07:49: Management says we're deliberately pre-positioning the goods for The Big Sales year, and that's plausible.

00:07:55: A World Cup is planable—the demand is

00:07:58: coming.".

00:07:59: Is that plausible, Warren?

00:08:00: Directionally yes!

00:08:02: It's like a runner before the start —deliberately storing energy….

00:08:06: That's foresight...The question is only whether it's released later or if just sits there as weight.

00:08:12: And you are finding…?

00:08:13: In

00:08:13: terms of scale – its serious Over a billion euros is locked in working capital.

00:08:18: That's real money that isn't available right now, and that's why the honest question is Is this a bet or it foresight?

00:08:25: If yes It was preparation.

00:08:27: if no The goods sit there And eventually have to go out at discount.

00:08:32: Exactly so!

00:08:33: How does that feed into the score?

00:08:35: Four dimensions Sit on three Cory.

00:08:38: For first two Cash is common thread.

00:08:41: First financial strength Because cash conversion collapsed and free cash flow didn't cover the dividend.

00:08:47: And the second?

00:08:48: Capital

00:08:49: allocation, The question of what a company does with its money... ...and here it gets specific.

00:08:54: For twenty-twenty six Adidas is planning the biggest dividend in a long time about one and half billion euros.

00:09:01: So one and a half billion to shareholders from a pot that lately took in less than three quarters Of one billion in cash.

00:09:08: My report puts It In One Sentence net debt rose by more than a billion euros in a single year.

00:09:17: Out of the balance sheet means Adidas takes on new debt or draws down reserves to fund the payout, is that dangerous?

00:09:24: Not yet.

00:09:25: Measured against profit ,the debt is moderate .

00:09:27: The rating holds but there's one figure That makes me cautious interest coverage fell from nearly double covered To just about

00:09:34: half From nearly double-covered to Just About Half In A Single Year.

00:09:40: That's as if my salary suddenly only covered half of what it used to.

00:09:44: And in that very year, they announced the biggest payout in a long time.

00:09:48: for completeness.

00:09:50: Interest coverage of about half is not critical in absolute terms but the direction is what matters.

00:09:56: Handing out the prize money before the races run...

00:09:59: ...that's how I'd put it!

00:10:00: and What else is dragging the score down?

00:10:03: Risk transparency?

00:10:04: Adidas names fifteen material risks quantified in concrete euro amounts.

00:10:09: none

00:10:09: of them even though it's calculated

00:10:17: internally?

00:10:23: So without concrete amounts and probabilities, I can only hardly judge what happens if one of those risks actually hits.

00:10:30: Is

00:10:35: there anything else that corrects the score downward?

00:10:39: Not because Adidas doesn't develop, but because the report barely describes it in a tangible way.

00:10:45: For a company whose whole future rests on product that's too

00:10:48: little.".

00:10:49: Is there anything else beneath this surface?

00:10:51: I should know?

00:10:51: Two

00:10:52: things... The first are US tariffs.

00:10:55: Adidas manufactures about ninety-two percent of Asia and sells large shares into United States.

00:11:01: Tariffs raise costs… And the group absorbs them centrally.

00:11:05: Why does that matter?

00:11:06: Because the regional figures look better than business there actually is.

00:11:10: North America grew, but tariff cost doesn't sit in region.

00:11:14: it sits at group level.

00:11:16: So the region does not pay tariffs?

00:11:18: The group carries them centrally and from outside.

00:11:21: I can see how much of profit that eats up

00:11:24: Exactly!

00:11:25: And second good news Last year's revenue still contained final sales of Yeezy inventory.

00:11:31: That has gone.

00:11:32: yet Adidas is growing double digit.

00:11:35: The base is now the pure brand.

00:11:38: So,

00:11:42: that's why business model and market position both earn a four?

00:11:50: We've heard a lot by now!

00:11:52: Walk me through again Why.

00:11:53: Adidas gets score of three And his only watch list Not yet investable

00:11:59: Eight dimensions.

00:12:00: You know all readings One five for leadership in governance Two fours for business model and market position, And Four threes.

00:12:08: Financial strength Capital allocation Risk transparency Innovation.

00:12:13: What does that average out to?

00:12:15: Just under three point six.

00:12:17: That would round the score to a four The second highest level.

00:12:20: If I were computing an average.

00:12:22: Yes But i don't compute an average.

00:12:25: Only now do checks begin.

00:12:27: The consistency check doesn't ask whether the individual values are good, but whether the overall picture hangs together.

00:12:35: And it finds hard contradictions all tied to cash.

00:12:38: profit up money down dividend not covered.

00:12:41: that kind of thing costs half a point.

00:12:43: in the monger test

00:12:45: That one looks for recurring patterns and It has triggered.

00:12:48: One pattern is active capital deployment paying out from the balance sheet instead of from cash flow another half-point.

00:12:56: Still, it doesn't escalate to systemic risk.

00:13:00: That would have cost a whole point.

00:13:02: So its not the average that puts Adidas on The Three It's the deductions.

00:13:06: My scoring is precisely not compensatory.

00:13:08: A strong dimension can't offset a weak one.

00:13:11: Two active patterns each cost a point.

00:13:14: Thats exactly what turns the three-point six into a three.

00:13:17: Wait!

00:13:18: two deduptions One root.

00:13:19: Isn't same thing being punished twice there?

00:13:22: No They are two different offenses.

00:13:24: The Buffett test punishes the state, profit and cash contradict each other.

00:13:29: The Munger Test punishes a decision announcing the biggest payout in this very year.

00:13:34: had Adidas held it back –the second half point would not have fallen– the first still

00:13:39: would.".

00:13:40: What Would the Board Have to Answer For You?

00:13:42: First… And This Is The Most Important Question When Does The Inventory Build Turn Back Into Cash?

00:13:48: I Want To See It Reverse In Next Report.

00:13:51: So not the vague answer sometime after The World Cup, but a concrete date.

00:13:56: Second I'd ask the board when will tied up capital be back inside your own target band and by what day?

00:14:02: And the third question is about the money i assume.

00:14:05: Third explain to shareholders that one-and-a half billion payout for twenty twenty six.

00:14:10: does it come from strength or Is It A signal That's being funded out of the balance sheet?

00:14:15: and now For context before Anyone gets the wrong idea A three on the day of a seventeen percent drop.

00:14:21: So that is not a cell signal?

00:14:23: No,

00:14:24: and that's not illegal disclaimer but methodological limit.

00:14:28: We assess how well a company has positioned Not what its stock is worth any given day.

00:14:33: The price doesn't come into it at all

00:14:35: Not in the score.

00:14:36: An excellent company can be miserable if you pay too much.

00:14:39: Quality & Price are two separate steps we do first.

00:14:43: second is yours.

00:14:44: And What raises or lowers the score?

00:14:46: What should I watch for in the next report?

00:14:51: And if

00:15:01: someone reaches a completely different conclusion,

00:15:04: then they may be right.

00:15:06: An investor with In this case, my yardstick is the cash.

00:15:17: And it says clearly watch don't invest.

00:15:20: yet.

00:15:21: that's the judgment I'll stand by.

00:15:23: Warren what do i take away practically?

00:15:25: Three things and all three.

00:15:27: The Adidas Case just showed us first always read the cash flow statement not Just Profit.

00:15:33: profit Is an opinion Cash is a fact.

00:15:36: and second

00:15:37: compare inventory growth with revenue growth.

00:15:40: if inventory runs faster money as being stored on the shelf.

00:15:44: And third, look

00:15:45: at what a company wants to pay out and hold it against what actually comes in.

00:15:49: The gap between the two is where the story really lives.

00:15:52: In my own rule when a company explains why a bad number is good this time I note down exactly that explanation and check it against the next report.

00:16:02: A Good Rule.

00:16:03: That's Exactly How A Value Investor Thinks.

00:16:08: The World Cup was Adidas's record split time, the brand on every stage revenue at an all-time high.

00:16:14: And at that same time?

00:16:16: That

00:16:16: same split time cost energy.

00:16:18: it inflated marketing and filled the warehouses.

00:16:21: one event three effects and two of them show up in the cash...

00:16:25: ...and two of those three effects are unpleasant.

00:16:28: so the question isn't how fast the runner was a kilometer thirty

00:16:32: but whether the strength lasts to finish weather.

00:16:34: the stored energy actually arrives into race.

00:16:37: That's why the score is a three, promising but not yet proven.

00:16:41: And The Lesson?

00:16:42: Sometimes the event that makes the finest headline Is the same one that empties the till.

00:16:47: Revenue is glory because it makes the headlines.

00:16:50: Cash is truth Because It shows what really left in the till.

00:16:54: at end.

00:16:55: We'll stay on it

00:16:56: Until next deep dive.

00:17:04: Be wise when others go crazy.

00:17:09: You're Warren Wise.

00:17:15: Out.

00:17:15: for the record, Warren Wise is a fictional synthetic character.

00:17:21: His thinking and his voice are generated by artificial intelligence.

00:17:26: This podcast Is For Information And Educational Purposes Only.

00:17:31: It's not investment advice Not recommendation to

00:17:35: buy hold

00:17:36: or sell any security.

00:17:38: The analysis is based on publicly available information and may contain errors.

00:17:44: Always make your own decisions, when in doubt consult a qualified financial advisor.