After a slump in profits last year, the prospects for the sporting goods manufacturer Adidas remain poor for the time being. The new CEO Björn Gulden sees the company facing another difficult year: Uncertain economic prospects and their effects on consumption, high inventories and the unclear situation about the Yeezy products lying on the heap from the terminated cooperation with the controversial US rapper Kanye West should burden the business.
At the balance sheet press conference in early March, Gulden already described 2023 as a “year of transition”. The company had to reduce inventories and reduce discounts. Europe and especially the USA are sitting on high inventories. As a result of the supply chain problems, retailers ordered a considerable number of additional products last year in order to be able to meet the high demand at the time. These are now in the warehouses and are being met with an increasing reluctance to buy on the part of consumers.
Persistent issues with “Yeezy” products
In addition, there are the problems with the dissolved partnership with West and the resulting “Yeezy” products, on which the Herzogenaurach-based company had made a lot of money in the past. How Adidas will deal with it was still open. Options range from various sales opportunities, which could include donating the proceeds to organizations, to having the goods destroyed. Adidas ended the cooperation last year due to allegations of anti-Semitism, among other things.
The management expects sales losses of 1.2 billion euros in the current year due to the failure of the Yeezy products alone. Overall, the company is assuming a currency-adjusted drop in sales in the high single-digit percentage range, also in view of the ongoing massive discount campaigns. Gulden hopes that Adidas will return to the growth path in 2024. For 2023, the company has also announced a depreciation of the Yeezy products of half a billion euros in the worst case and has announced an operating loss of 700 million euros. If possible value adjustments and special effects such as costs for a conversion program are excluded, the result should be on the breakeven point.
Gulden has set out to improve the sports fashion business and wants to strengthen both direct business with consumers and wholesale. In the Chinese business, which is traditionally more tailored to sports fashion, the sports area should receive more attention.
Weak start to the year is expected
Market experts expect a weak start to the year. The bottom line is that Adidas should have slipped into the loss zone. In an estimate compiled by Adidas, analysts assume an average net loss in continuing operations of 20 million euros. In the previous year, Adidas had made a profit of 310 million euros. The experts see the operating margin as slightly positive at 0.3 percent – but this corresponds to a decrease of 7.9 percentage points. In terms of sales, they expect a decline of four percent both in euros and currency-adjusted to almost 5.1 billion euros.
For 2023, the analysts have so far predicted a currency-adjusted drop in sales of seven percent. In terms of the operating result, they expect a loss of 665 million euros and the bottom line in the continued business with a minus of 620 million euros.
The first quarter is of little relevance to the investment story, wrote analyst Zuzanna Pusz from the Swiss bank UBS. 2023 will be a year of transition. The focus is, among other things, on the use of stocks from the ended Yeezy cooperation. (dpa)