April 19, 2024

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Adidas warns of declining sales in North America as it continues to sell out of Yeezy inventory

Adidas warns of declining sales in North America as it continues to sell out of Yeezy inventory

Adidas confirmed its 2023 operating profit reached €268 million ($292.9 million) on the back of flat currency-neutral sales, well above previous expectations as the company continues to take a hit from the discontinuation of its Yeezy line – the footwear retailer. It was produced in collaboration with American rapper Yee, formerly known as Kanye West.

In the fourth quarter, the company recorded an operating loss of 377 million euros. The Board of Directors proposed a fixed dividend of €0.70 per share.

“Although 2023 was not good enough, it ended better than I expected at the beginning of the year,” CEO Björn Gulden said in a statement.

“Despite losing a lot of Yeezy revenue and a very conservative selling strategy, we were able to achieve stable revenues. We were expecting a significant negative operating result, but we achieved an operating profit of €268 million.”

Adidas was confirming initial results released in late January, when it announced it would not write off the majority of its Yeezy inventory and would instead sell the remaining shoes at cost.

The sportswear giant was forced to cancel its Yeezy line after ending its partnership with Ye due to a series of anti-Semitic statements made by the rapper in 2022.

Adidas said the discontinuation of Yeezy production represents a decline of about 500 million euros in year-on-year comparison through 2023, although the sale of parts of remaining inventory in the second and third quarters positively impacted net sales by about 750 million euros.

“Through a very disciplined go-to-market and purchasing process, we have reduced our inventories by about 1.5 billion euros. With the exception of the United States, we now have good inventories everywhere,” Golden said.

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He added that the company expects some growth in the first quarter of 2024 and a further recovery in the second half of the year.

“We still have a lot of work to do, but I feel very confident that we are on the right track. We will bring adidas back. Give us some time and we will say again – we got this!” He said.

Adidas expects operating profits of around €500 million in 2024, with unfavorable currency effects expected to “significantly impact the company's profitability” due to negative impacts on both reported revenues and gross margin development.

Adidas shares were stable by mid-morning on Wednesday.

Given that the headline numbers were previously released in January, the most interesting aspect of Wednesday's report was the “clear acceleration of the Adidas brand,” said Mamta Valecha, equity research analyst at Quilter Cheviot.

“For Adidas and the overall sportswear industry, performance will halve, with the first half continuing to be impacted by high inventory reduction initiatives, particularly in North America,” she said via email.

“As a result, retailers' orders remain weak in the first half of the year as they exercise extreme caution. However, demand is expected to pick up on the back of the Olympic Games and European Championships this summer.”

Adidas aims to return to revenue growth by expanding its successful shoe lines such as the Samba and Gazelle, while also introducing new ones.