Adidas third quarter currency-neutral revenues were up 1 percent, while in euro terms, the company’s revenues declined 6 percent to 5.999 billion euros.
Adidas said in a release, the second Yeezy product drop generated revenues of around 350 million euros. As a result, excluding the Yeezy revenues in both years, currency-neutral revenues increased 2 percent during the quarter.
Currency-neutral revenues on prior-year level in the first nine months were flat versus the prior-year period. In euro terms, revenues decreased 4 percent to 16.616 billion euros.
Adidas now expects currency-neutral revenues to decline at a low-single-digit rate in 2023 against prior outlook of decline at a mid-single-digit rate.
Commenting on the company’s financial performance, Adidas CEO Bjørn Gulden said: “Q3 was another quarter where we saw progress and where the results were better than expected. This year, we improved our outlook every quarter and are now looking at currency-neutral revenues to be down only low single digits and a small operating loss of 100 million euros, including a possible 300 million euros write-off of the remaining Yeezy inventory and one-off costs of 200 million euros related to the strategic review.”
Adidas footwear sales up, apparel declines in Q3
The company’s footwear revenues grew 6 percent during the quarter on a currency-neutral basis, reflecting double-digit growth in Adidas Originals as well as in the football and basketball categories. Apparel sales declined 6 percent in the third quarter, while accessories revenues were down 3 percent.
As a result of the company’s initiatives to reduce high inventory levels, currency-neutral sales in wholesale declined 2 percent despite double-digit growth in Greater China and Latin America. At the same time, direct-to-consumer (DTC) revenues grew 5 percent versus the prior year driven by 10 percent growth in Adidas’ own retail stores. The e-commerce business recorded 1 percent growth.
Currency-neutral sales in North America declined 9 percent and declined 10 percent excluding Yeezy revenues in both years affected by elevated inventory levels in the market and significantly reduced sell-in. Revenues in Greater China grew 6 percent or 10 percent excluding Yeezy, driven by double-digit growth in wholesale. Sales in EMEA increased 2 percent, reflecting high-single-digit growth across the company’s own distribution channels. Revenues in Asia-Pacific increased 7 percent and 5 percent excluding Yeezy. Latin America rose 13 percent or 12 percent excluding Yeezy), reflecting strong growth in both wholesale and DTC.
The company’s third quarter gross margin increased 0.2 percentage points to 49.3 percent, operating profit of 409 million euros, resulting in an operating margin of 6.8 percent. After taxes, the company’s net income increased to 270 million euros, while basic EPS improved to 1.40 euros.
Highlights of Adidas’ first nine months results
The company added that the discontinuation of the regular Yeezy business represented a drag of nearly 450 million euros during the first nine months of the year. Excluding the Yeezy revenues in both years, currency-neutral revenues were up 3 percent during the first nine months of 2023.
The company’s gross margin declined 1.4 percentage points to 48.4 percent, operating profit declined to 646 million euros, while the operating margin reached 3.9 percent. Net income was 343 million euros compared to 736 million euros in 2022 and basic and diluted earnings per share declined to 1.69 euros.
Adidas now expects revenues to decline at a low-single-digit rate
On October 17, Adidas had adjusted its full year financial guidance to reflect both the positive impact of the second drop of some of its Yeezy inventory and the better-than-expected development of the underlying business.
However, the company further said that elevated recession risks in North America and Europe as well as uncertainty around the recovery in Greater China continue to exist. In addition, the company’s revenue development is expected to be impacted by the initiatives to significantly reduce high inventory levels in North America and the company’s focus on full-price sales across its own channels.
Adidas now expects currency-neutral revenues to decline at a low-single-digit rate in 2023 against prior outlook of decline at a mid-single-digit rate. Underlying operating profit anticipated to reach a level of around 100 million euros and reported operating loss to be around 100 million euros versus loss of 450 million euros previously.