© Reuters. FILE PHOTO: Adidas merchandise is seen in an Adidas store on the day the German company terminated its partnership with the American rapper and designer Kanye West, now known as Ye, in Garden City, New York, U.S., October 25, 2022. REUTERS/Shannon Staple
By Helen Reid
HERZOGENAURACH, Germany (Reuters) -German sportswear giant Adidas (OTC:) posted its first annual loss in more than 30 years on Wednesday and warned sales in North America would fall again as sportswear retailers in the U.S. struggle with high inventories.
Adidas has been battling to right itself after it cut ties with Kanye West in October 2022, suspending sales of the highly profitable Yeezy sneaker line.
In CEO Bjorn Gulden’s first year in the role, he resumed sales of Yeezy sneakers to clear remaining stock while seeking to boost popular products like Samba and Gazelle shoes, and improve relationships with retailers. Shares in Adidas have staged a recovery, outperforming Nike (NYSE:) and Puma since he took over.
“Although by far not good enough, 2023 ended better than what I had expected at the beginning of the year,” Gulden said.
Adidas shares were trading flat as of 1115 GMT.
This year North America will continue to be weak with Adidas expecting sales to fall by around 5% this year.
Lower demand and overstocked stores in the U.S. have weighed on sportswear and apparel companies, and Adidas said sales in North America fell by 21% in the fourth quarter and by 16% over the year.
Overall, Gulden said clearing stock through its outlet stores helped Adidas bring inventories down by 1.5 billion euros in 2023, a 24% decline.
Adidas has flagged shipment delays of two to three weeks due to the Red Sea crisis, and Chief Financial Officer Harm Ohlmeyer said on Wednesday that there could be an impact on working capital if the disruptions continue.
‘RIGHT DIRECTION’
Adidas is gambling that it can claw back market share from rivals even as consumers’ overall appetite for sportswear declines, sparking job cuts at Nike.
Adidas expects its underlying business – excluding Yeezy – to improve in 2024, with growth of at least 10% in the second half.
It has benefited from a trend for low-rise suede “terrace” sneakers like the Samba and Gazelle, and last year ramped up production. That trend helped footwear sales grow by 8% in the fourth quarter, while apparel sales fell 13%.
“Things have clearly been going in the right direction at Adidas since Bjorn Gulden took over,” said Thomas Joekel, portfolio manager at Union Investment. “Brand heat is increasing, which can also be seen from the fact that fewer products now have to be sold at a discount.”
In China Adidas expects a stronger recovery, with sales growing at a double-digit rate after an 8% increase in 2023.
Adidas last month set expectations low for its remaining Yeezy products, saying it would sell the sneakers “at least at cost”. It launched its latest drop on Feb. 26, but demand for the shoes is difficult to predict.
The Yeezy sales are “still a little bit of a wild card,” said Cristina Fernandez, analyst at Telsey Advisory Group, despite the company managing the sales successfully so far.
Adidas made 750 million euros in revenue from Yeezy sales last year, resulting in a 300 million euro profit. The company set aside 140 million euros for donations to charities fighting antisemitism and racism.
Adidas’ board will propose an unchanged dividend of 0.70 euros ($0.7650) per share on its 2023 performance despite a net loss of 58 million euros, its first since 1992.
($1 = 0.9151 euros)
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