Fourth quarter currency-neutral revenues at Adidas declined 1 percent and in euro terms, total revenues increased 1 percent to 5.2 billion euros.
In 2022, currency-neutral revenues at Adidas grew 1 percent, reflecting increases in all market segments except Greater China. In euro terms, the company’s revenues increased 6 percent to 22,5 billion euros.
Net income for the year decreased 83 percent to 254 million euros in 2022 and both basic and diluted EPS also decreased 83 percent to 1.25 euros. Fourth quarter net loss amounted to 482 million euros , while both basic and diluted EPS were negative 2.69 euros.
The company has decided to slash quarterly dividend to 0.70 euros per dividend-entitled share.
“2023 will be a transition year to build the base for 2024 and 2025. 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,” said Bjørn Gulden, CEO of Adidas.
Highlights of Q4 results at Adidas
The revenue decline in the fourth quarter, Adidas said, reflects the negative impact of around 600 million euros related to the company’s decision to terminate the Yeezy partnership at the end of October.
In addition, a strong revenue decline in Greater China of 50 percent due to the challenging market environment, company-specific challenges as well as significant inventory takebacks weighed on the company’s top-line development in the quarter.
The companies revenues in Latin America increased 47 percent, Asia-Pacific, 16 percent, and EMEA, 12 percent. Currency-neutral sales increased 6 percent in North America.
From a channel perspective, the company’s top-line development was driven by wholesale where currency-neutral revenues increased 4 percent. Revenues in the company’s own DTC channel declined 1 percent, while e-commerce revenues decreased 4 percent during the quarter, sales in Adidas own retail stores increased 1 percent.
Gross margin decreased to 39.1 percent, a 9.9 percentage points decline.
Review of full year results at Adidas
From a channel perspective, Adidas’ top-line development was supported by growth in both wholesale, up 1 percent and the company’s own direct-to-consumer (DTC) business, up 2 percent.
Within DTC, the company’s own retail revenues were flat compared to the prior year level. E-commerce revenues increased 4 percent during the year driven by double-digit growth in North America and Latin America. From a category perspective, currency-neutral revenues in performance grew at a strong double-digit rate, while lifestyle revenues declined.
From a market perspective, currency-neutral sales grew at a double-digit rate in Latin America, up 44 percent and North America, up 12 percent. Revenues in EMEA were up 9 percent amid the significant adverse impact from the wind-down of the company’s business in Russia. Sales in Asia-Pacific grew 4 percent in 2022, while in Greater China, revenues declined 36 percent.
The company’s gross margin decreased 3.4 percentage points to 47.3 percent. Operating margin decreased to 3 percent.
Adidas expects currency-neutral revenue decline in 2023
In 2023, Adidas expects currency-neutral revenues to decline at a high-single-digit rate as macroeconomic challenges and geopolitical tensions persist. The company said, elevated recession risks in Europe and North America as well as uncertainty around the recovery in Greater China continue to exist.
The company’s revenue development will also be impacted by the initiatives to significantly reduce high inventory levels. In addition, while the company continues to review future options for the utilisation of its Yeezy inventory, the guidance already reflects the revenue loss of around 1.2 billion euros from potentially not selling the existing stock.
Accounting for the corresponding negative operating profit impact of around 500 million euros, the company’s underlying operating profit is projected to be around the break-even level in 2023. Reported operating loss of 700 million euros is projected and if the company irrevocably decides not to repurpose any of the existing Yeezy product going forward, this would result in the potential write-off of the existing Yeezy inventory and would lower the company’s operating profit by an additional 500 million euros this year.
The company expects to report an operating loss of 700 euros million in 2023.