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Friday, June 21, 2024

Adidas struggles with first loss in 30 years

Key Takeaways:

  • Adidas reported its first annual loss in over 30 years, posting a net loss of €58 million in 2023.
  • The company faced significant challenges following the termination of its partnership with Kanye West and the suspension of Yeezy sales in October 2022.
  • Sales in North America declined substantially, with a 21% drop in Q4 and a 16% decrease for the full year. Adidas expects this weakness to persist, projecting a further 5% decline in the region for 2024.

Adidas has reported its first annual loss in more than three decades. The company posted a net loss of €58 million for 2023, a contrast to the €254 million net income it recorded in the previous year.

Adidas Decision

Adidas faced troubles in 2023 following its decision to cut ties with Kanye West and suspend sales of the profitable Yeezy sneaker line in October 2022. Under new CEO Bjørn Gulden, the company sought to right the ship by resuming sales of remaining Yeezy inventory to clear stock, while focusing on boosting other popular products like Samba and Gazelle shoes.

Lower demand and overstocked stores in the US continued to weigh heavily on Adidas. Sales in North America plunged 21% in Q4 and 16% for the full year. Gulden expects the weakness in North America to persist, projecting a further 5% decline in sales for the region in 2024.

Progress in Other Markets

On a positive note, Adidas made progress in managing its high inventory levels, reducing them by €1.5 billion or 24% by year-end. Continued efforts to clear stock through outlet stores helped improve the inventory situation everywhere except the US.

The company also saw some spots in other markets and categories. Sales grew 8% in China and Adidas posted strong growth in its footwear business, driven by iconic franchises like Samba and Gazelle. Its retail stores delivered double-digit growth.

Adidas projects currency-neutral sales will return to mid-single-digit growth in 2024, though this assumes it will sell off the remaining Yeezy inventory at cost. The company expects a rebound in the underlying business in the second half. However, transactional FX headwinds are expected to significantly impact both the top and bottom line. Adidas is guiding to an operating profit of around €500 million in 2024.

The company remains confident in its long-term prospects as it focuses on product innovation, marketing initiatives around key sporting events, and strengthening relationships with retailers. However, the road to recovery will likely be gradual as Adidas works through its inventory and the US market.

Publisher and editor of LJLNews. I am a Stock Market enthusiast, with an interest for politics. I hope you enjoy reading the articles! Contact me at: Lazaruslucas@ljlnews.com

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