The sporting goods company Adidas performed better last year than it had recently predicted.
The Nike rival announced on Wednesday that it would not write off the majority of its product inventory from the terminated partnership with the controversial rapper Kanye West, but would at least sell it to cover costs. However, the company is increasingly suffering from negative currency effects – such as the devaluation of the Argentine peso in the fourth quarter. This is likely to cause headwinds in 2024 and put a significant strain on profitability.
The operating result fell from 669 million to 268 million euros last year, as the company announced based on preliminary figures after the stock market closed in Herzogenaurach. Adidas recently announced a loss of 100 million euros. “We owe the improvement to the operational business, which was around 100 million euros better, and the decision not to write off Yeezy stocks amounting to 268 million euros,” said CEO Björn Gulden, explaining the development.
The remaining stocks should be sold at least at cost price in the current year. “That’s why we only wrote off stocks that were either damaged or only available in a few sizes.” According to Adidas, the write-offs only amount to a low double-digit million euro amount.
Inflation in Argentina is also weighing on Adidas
Sales fell by five percent to 21.4 billion euros in 2023. Adidas explained that negative currency effects had a volume of more than one billion euros. The devaluation of the Argentine peso had a negative impact in the fourth quarter. Adjusted for currency effects, it was roughly at the same level as the previous year. However, Adidas had forecast a decline in the low single-digit percentage range. Due to the reduction in inventories, sales to wholesalers were significantly reduced, it said. In addition, the termination of the Yeezy business impacted sales development by around 500 million euros compared to the previous year.
However, negative exchange rate effects are likely to have a significant impact on profitability in the current year. There are also the “challenges in North America,” said CEO Gulden. For 2024, Adidas expects an operating result of around 500 million euros.
Currency-adjusted sales are expected to increase in the mid-single-digit percentage range. According to the information, the sales forecast is based on the assumption that Adidas will sell the remaining Yeezy stocks to cover costs, which would lead to sales of around 250 million euros. CEO Gulden assumes that “sales at the beginning of the year will initially be at the same level as the previous year, but will then improve from quarter to quarter.” (dpa)