Adidas flags weak 2023 as it works on turnaround

Sportswear giant Adidas reported a 1% increase in currency-neutral revenues in its 2022 results on Wednesday.

The company said its growth was driven by all markets except Greater China, with double-digit increases in North America and Latin America, and high single-digit increases in Europe, the Middle East, and Africa (EMEA).

However, its gross margin declined to 47.3%, which Adidas attributed to a strong increase in supply chain costs and discounting.

Operating profit for the year totalled €669m, including one-off costs of €312m, resulting in a decrease in operating margin to 3%.

Net income from continuing operations was €254m, which included €350m in one-off costs.

The executive and supervisory boards of Adidas proposed a dividend of 70 euro cents per share.

In the fourth quarter specifically, the firm experienced a decline in currency-neutral revenues of 1%, largely due to the termination of its Yeezy partnership.

The gross margin for the quarter was 39.1%, reflecting an increase in supply chain costs and higher discounting.

Adidas reported an operating loss of €724m, and a net loss from continuing operations of €482m.

Looking ahead, Adidas said it was expecting a decline in currency-neutral revenues at a high-single-digit rate in 2023, and underlying operating profit to be around the break-even level.

The company said it expected a sales loss of around €1.2bn and a corresponding negative operating profit impact of around €500m from potentially not selling Yeezy stock.

Its reported operating loss was anticipated to be €700m, including an additional negative impact of €500m from potential Yeezy inventory write-off, and up to €200m in one-off costs.

“2023 will be a transition year to build the base for 2024 and 2025,” said chief executive officer Bjørn Gulden.

“We need to reduce inventories and lower discounts. We can then start to build a profitable business again in 2024.

“Adidas has all the ingredients to be successful. But we need to put our focus back on our core: product, consumers, retail partners, and athletes.”

Gulden said the company would work on strengthening its people and culture, adding that motivated people and a “strong Adidas culture” were the most important factors to build a unique Adidas business model again.

“A business model built to focus on serving our consumer through both wholesale and DTC, that balances global direction with local needs, that is fast and agile, and of course, always invests in sports and culture to keep building credibility and brand heat.

“Adidas is a fantastic brand, a fantastic company with great infrastructure and great talented people.

“We will bring it back to be the best sports brand in the world once again.”

At 1518 CET (1418 GMT), shares in Adidas were down 2.63% in Frankfurt at €140.64.

Reporting by Josh White for Sharecast.com.