Adidas warns of falling sales in North America as it continues to sell off Yeezy inventory

Earnings

Adidas shoes are displayed at a DSW store on January 31, 2024 in Novato, California. 
Justin Sullivan | Getty Images

Adidas on Wednesday warned of a sales decline in its overstocked North American market in 2024, as the German sportswear brand continues to sell off its remaining Yeezy inventory.

Currency-neutral sales in North America are expected to decline to a mid-single-digit rate in 2024, but are projected to notch mid-single-digit growth worldwide despite persistent “macroeconomic challenges and geopolitical tensions,” the company said.

Adidas confirmed its 2023 operating profit came in at 268 million euros ($292.9 million) on the back of flat currency-neutral sales, significantly above prior expectations as the company continues to take a hit from the cessation of its line of Yeezy — footwear the retailer produced in a collaboration with American rapper Ye, formerly known as Kanye West.

For the fourth quarter, the company posted an operating loss of 377 million euros. The board proposed a flat dividend of 0.70 euros per share.

“Although by far not good enough, 2023 ended better than what I had expected at the beginning of the year,” CEO Bjørn Gulden said in a statement.

“Despite losing a lot of Yeezy revenue and a very conservative sell-in strategy, we managed to have flat revenues. We expected to have a substantial negative operating result, but achieved an operating profit of €268 million.”

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

The sportswear giant was forced to axe the Yeezy line after terminating its partnership with Ye over a string of anti-Semitic remarks that the rapper made in 2022.

Adidas said the discontinuation of Yeezy represented a drag of around 500 million euros in the year-on-year comparison through 2023, though the sale of parts of the remaining inventory in the second and third quarter positively impacted net sales by around 750 million euros.

“With a very disciplined go-to-market and buying process, we reduced our inventories by almost €1.5 billion. With the exception of the U.S., we now have healthy inventories everywhere,” Gulden said.

He added that the company is expecting some growth in the first quarter of 2024 and a further pick-up in the second half of the year.

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

Adidas projected an operating profit of around 500 million euros in 2024, with unfavorable currency effects expected to “weigh significantly on the company’s profitability” because of adverse impacts on both reported revenues and gross margin development.

Adidas shares were flat by mid-morning on Wednesday.

Mamta Valechha, equity research analyst at Quilter Cheviot, said that, given that the headline numbers were already pre-released in January, the most interesting aspect of Wednesday’s report was the “clear acceleration of the Adidas brand.”

“For Adidas and the sportswear industry in general, performance will be back half weighted, with the first half still being impacted by initiatives to bring down elevated inventories, particularly in North America,” she said by email.

“As a result, order books by retailers are still weak for the first half of the year as they are being quite cautious. However, demand is expected to pick-up from on the back of the Olympics and Euros this summer.”

Adidas aims to return to top-line growth by scaling up successful shoe lines such as Samba and Gazelle, while also introducing new lines.

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