Adidas has warned
Adidas confirmed its 2023 operating profit at 268 million euros ($292.9 million), surpassing prior expectations despite flat currency-neutral sales. This is largely due to the impact from halting its Yeezy line, a footwear collection produced in collaboration with American rapper Ye, formerly known as Kanye West.
For the fourth quarter, Adidas reported an operating loss of 377 million euros. The board has proposed a flat dividend of 0.70 euros per share.
“Although by far not good enough, 2023 ended better than what I had expected at the beginning of the year,” said CEO Bjørn Gulden in a statement. “Despite losing a lot of Yeezy revenue and a very conservative sell-in strategy, we managed to have flat revenues. We expected to have a substantial negative operating result, but achieved an operating profit of €268 million.”
The company had previously announced in January that it would not write off the majority of its Yeezy inventory, opting instead to sell the remaining shoes at cost. Adidas terminated its partnership with Ye in 2022 following a series of anti-Semitic remarks made by the rapper.
The discontinuation of Yeezy caused a drag of around 500 million euros in the year-on-year comparison through 2023. However, the sale of parts of the remaining inventory in the second and third quarters positively impacted net sales by around 750 million euros.
“With a very disciplined go-to-market and buying process, we reduced our inventories by almost €1.5 billion. With the exception of the U.S., we now have healthy inventories everywhere,” Gulden stated. He expressed optimism for some growth in the first quarter of 2024 and further improvement in the second half of the year.
“We still have a lot of work to do, but I feel very confident we are on the right track. We will bring Adidas back again. Give us some time and we will again say – we got this!” he said.
Adidas projects an operating profit of around 500 million euros in 2024, with unfavorable currency effects expected to “weigh significantly on the company’s profitability” due to adverse impacts on both reported revenues and gross margin development. Adidas shares remained flat by mid-morning on Wednesday.
Mamta Valechha, equity research analyst at Quilter Cheviot, noted that the headline numbers had already been pre-released in January, but highlighted the “clear acceleration of the Adidas brand” as the most interesting aspect of the report.
“For Adidas and the sportswear industry in general, performance will be back half weighted, with the first half still being impacted by initiatives to bring down elevated inventories, particularly in North America,” she said via email. “As a result, order books by retailers are still weak for the first half of the year as they are being quite cautious. However, demand is expected to pick-up from on the back of the Olympics and Euros this summer.”
Adidas aims to return to top-line growth by scaling up successful shoe lines such as Samba and Gazelle, while also introducing new lines.
