UPDATE 3-Samba, Gazelle shoes help drive Adidas sales while North America lags

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Lifestyle business main sales driver for Adidas

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CEO says demand for Samba, Gazelle still growing

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North America sales down 4% in Q1

(Adds comparison to Nike in paragraph 5, sneaker marketplace data in paragraph 6)

By Linda Pasquini and Helen Reid

April 30 (Reuters) - Sales growth in Europe and China helped drive Adidas' strong first-quarter results, while North America was a weak spot as retailers remain overstocked, the German sportswear brand said on Tuesday.

Adidas has been on a turnaround journey since a damaging breakup with rapper Ye ended its highly profitable Yeezy shoe line and it reported a loss for 2023, but the company's sales have recently been boosted by the popularity of its "terrace" shoes such as the Samba and Gazelle.

Adidas CEO Bjorn Gulden said the lifestyle business drove sales in the first quarter, and that demand for terrace shoes was still growing. Footwear revenues were up 13% over the quarter.

"Adidas has gone from the one no one wanted to touch to the brand that has all the positive momentum behind it," said Marcus Morris-Eyton, portfolio manager at AllianceBernstein, which holds Adidas shares in its European Growth fund.

Adidas has taken advantage of a weakening of its much larger U.S. rival Nike, which has lost market share and warned of a sales dip.

On marketplace The Edit LDN, where "sneakerheads" buy and sell limited-edition shoes, sales of Nike shoes have fallen overall by roughly 30%, while sales of Adidas shoes - which are typically lower priced - have jumped by 80% from last year, founder and CEO Moses Rashid said.

In the U.S., like other retailers Adidas has been struggling with excess stock and has cut prices to move products off retailers' shelves.

Revenue in North America, its second-biggest market, declined 4% year-on-year to 1.12 billion euros ($1.20 billion) in the first three months of 2024, but an improvement from the more than 20% decline in the last quarter of 2023.

Sales grew by 14% in Europe and by 8% in China.

Overall, "much healthier" inventory levels and lower sourcing costs helped drive Adidas' gross margin up by 6.4 percentage points to 51.2%, the company said.

"The trajectory to get back to double-digit EBIT margins is on track," Morris-Eyton said, adding Adidas has managed to cut back on discounting, and that terrace shoes are a high gross margin product. ($1 = 0.9342 euros)

(Reporting by Linda Pasquini and Helen Reid, Editing by Louise Heavens Editing by Miranda Murray and Eileen Soreng)