UBS has downgraded adidas to a neutral rating, signaling that the sportswear giant's profit margins may have reached their peak. The bank also slashed its price target on the stock to €173 from €219, a move that reflects growing caution about the company's near-term profitability.
The downgrade comes with a specific warning: UBS analysts believe gross margin headwinds in 2027 and 2028 could leave adidas' 2028 earnings before interest and taxes (EBIT) roughly 8% below what the broader market currently expects. In plain terms, the bank thinks Wall Street is too optimistic about how much money adidas will be able to keep from each sale in a few years' time.
What's behind the caution?
UBS Global Research, the bank's analyst team, said it still likes adidas' long-term direction under CEO Bjørn Gulden. In fact, the analysts even nudged up their sales forecasts for 2026 through 2028. The problem, they argue, is not about how many shoes and tracksuits adidas sells—it's about how profitable those sales will be.
The bank points to several specific pressures that could squeeze gross margin—the percentage of revenue a company keeps after paying the direct costs of making its products. These include:
- Higher oil-linked input costs: Many of the synthetic materials used in footwear and apparel are derived from oil, so rising crude prices can push up production costs.
- A stronger US dollar: Since adidas reports earnings in euros but sells heavily in the US and other dollar-linked markets, a stronger dollar can reduce the value of overseas revenue when converted back.
- A shift toward wholesale partners in 2027: Selling through wholesale channels typically yields lower margins than selling directly to consumers, whether through adidas' own stores or its website.
These factors, UBS argues, are being underappreciated by investors who have been focused on adidas' recent recovery story.
Context: adidas' turnaround and the market's view
Adidas has been on a notable comeback under Bjørn Gulden, who took over as CEO in early 2023. The brand has worked to clear excess inventory, revive classic silhouettes, and rebuild relationships with retailers. That turnaround has helped lift the stock and boosted investor confidence.
However, the UBS downgrade is a reminder that even successful turnarounds face limits. Margins—the key measure of how efficiently a company turns sales into profit—can only expand so far before cost pressures or competitive dynamics start to bite. For a company like adidas, which operates in a highly competitive global market, maintaining high margins is an ongoing challenge.
This is not the first time analysts have flagged concerns about adidas' profitability. Berenberg recently noted mixed signals in adidas' post-Q2 message, keeping a hold rating on the stock. That suggests the cautious sentiment is not isolated to UBS.
What it means for investors
For everyday investors, the key takeaway is that adidas' stock may no longer offer the same upside that it did during the early stages of its turnaround. When a bank like UBS cuts its rating to neutral, it's essentially saying the risk-reward balance has shifted—there may be less room for the shares to climb, and more potential for disappointment if margins don't hold up.
The 8% gap between UBS's 2028 EBIT estimate and consensus is significant. It suggests that if the bank is right, adidas will earn less than expected in a few years, which could weigh on the stock price as that date approaches. Investors who own adidas shares should be aware of these looming pressures, even if the company's sales growth remains solid.
It's also worth noting that a price target cut of this size—from €219 to €173—is a clear signal that the bank sees less upside than before. While price targets are not guarantees, they are a useful gauge of analyst sentiment.
For those considering adidas as a long-term holding, the UBS note is a reminder to look beyond the headline sales numbers and focus on profitability trends. Rising raw material costs have squeezed margins at other companies too, and adidas is not immune to such pressures.
Ultimately, the UBS downgrade doesn't mean adidas is a bad company—far from it. But it does suggest that the easy gains from the turnaround may be over, and that investors should temper their expectations for margin expansion in the coming years.
As always, it's wise to consider a range of analyst views and your own financial situation before making any investment decisions. Margins are a key focus for investors across many sectors, and adidas is no exception.
