Dive Brief:
- Adidas on Thursday lowered its 2023 guidance, citing potential losses from ending its sale of Ye branded merchandise. The company terminated its partnership with him in October after the designer and musical artist made a series of offensive and anti-Semitic comments.
- An inability to sell the existing stock would lower revenues by 1.2 billion Euros ($1.28 billion) and operating profit by 500 million euros. If Adidas chooses to write off the Yeezy-branded inventory instead, doing so would lower the company’s operating profit by an additional 500 million euros. In light of that potential loss, the company said it’s continuing to review future options to sell the inventory.
- If all these circumstances came to pass, Adidas said it would report an operating loss of 700 million euros in 2023. The company also expects one-time costs of up to 200 million euros as part of a strategic review to turn Adidas toward profitable growth in 2024.
Dive Insight:
Adidas’ breakup last year with Ye, also known as Kanye West, is looking to be an expensive proposition.
Adidas said revenues increased 1% in currency-neutral terms in 2022 based on unaudited numbers. In reported terms, sales were up 6% to 22.5 billion euros during the 12-month period. Last year, Adidas generated an operating profit of 669 million euros, down from 1.98 billion euros in 2021. That reflects an operating margin of 3%, down from 9.4% in 2021.
“The numbers speak for themselves. We are currently not performing the way we should,” Adidas CEO Bjørn Gulden said in a statement. “2023 will be a year of transition to set the base to again be a growing and profitable company.”
Asked by Retail Dive if there is a specific date or any other metric set at which time the company will decide to either repurpose or write off the Ye-related inventory, Adidas spokesperson Rich Efrus said in an email the company expects “to make a decision within the next few months.” Efrus declined to comment on how many pieces of Yeezy merchandise Adidas has in inventory.
Headquartered in Germany, the company plans to report its Q4 and FY 2022 results on March 8.
“This outlook is shockingly bad, and it seems pretty clear that new CEO Bjorn Gulden wanted to ‘clear the deck’ upon taking command,” Wedbush analysts Tom Nikic and Austin Borina said in a Thursday note. “While we'd be shocked if the company missed these numbers this year, it's hard to have much confidence in the trajectory of the brand, given the lack of product innovation.”
While the athletic apparel industry does face some challenges, Nikic and Borina said many issues facing Adidas are self-inflicted. They include a lack of product innovation and failure to identify a replacement for Ye, who still has a significant market influence despite his problematic behavior and statements.
For example, Wedbush’s analysts noted, Adidas generated some excitement several years ago, around Beyonce’s "Ivy Park" sub-brand. But according to The Wall Street Journal, that brand did not meet revenue expectations. It generated $40 million of revenue in 2022, down more than 50% from $93 million in 2021 and far short of the expectation of over $200 million.
In the updated guidance, Gulden said the company has “all the ingredients to be successful,” which include a great brand, great people and a strong global infrastructure. “We need to put the pieces back together again, but I am convinced that over time we will make Adidas shine again. But we need some time,” Gulden said.
West’s personal net worth dropped from more than $1 billion to $400 million after multiple companies ended their business relationships with him over his repeated offensive comments and behavior, Insider reported in October.
