Adidas sales decline, Yeezy crisis continues to weigh on results

In the first quarter of 2023, currency-neutral revenues at Adidas Ag were flat versus the prior-year level. In euro terms, the company’s revenues declined 1 percent to 5.274 billion euros.

The company said in a statement that top-line development was impacted by significantly reduced sell-in to the wholesale channel as part of the company’s initiatives to reduce high inventory levels, particularly in North America and Greater China.

In addition, the discontinuation of the Yeezy business weighed on the top-line development during the quarter, representing a drag of around 400 million euros on the year-over-year comparison, mainly across the North America, Greater China and EMEA regions.

Commenting on the trading update, Adidas CEO Bjørn Gulden said: “Q1 ended a little better than we had expected with flattish sales and a small operating profit of 60 million euros. Sales growth excluding Yeezy was 9 percent. 2023 will be a bumpy year with disappointing numbers, where maximising our short-term financial results is not our goal. It is a transition year to build a strong base for a better 2024 and a good 2025 and beyond.”

Highlights of Q1 results at Adidas

The company’s footwear revenues grew 1 percent during the quarter, reflecting the strong momentum the Adidas brand is enjoying in its performance categories football, running, outdoor and tennis. Apparel sales declined 3 percent impacted by the high inventory levels in the marketplace. Accessories grew 8 percent during the quarter driven by strong growth in football.

Lifestyle revenues were down during the quarter despite demand for the company’s Samba, Gazelle and Campus franchises.

Wholesale revenues grew in EMEA, Asia-Pacific and Latin America From a channel perspective, currency-neutral sales in wholesale grew 3 percent driven by strong growth in EMEA, Asia-Pacific and Latin America. Direct-to-consumer (DTC) revenues declined 7 percent versus the prior year reflecting the adverse Yeezy impact on the company’s e-commerce business, down 23 percent. At the same time, sales in the company’s own retail stores increased 11 percent.

Currency-neutral sales in North America declined 20 percent during the quarter as the region is particularly affected by the discontinuation of the Yeezy business. In addition, significantly reduced sell-in to the wholesale channel as a result of high inventory levels in the market weighed on the top-line development. Total revenues in Greater China declined 9 percent.

Sales in EMEA grew 4 percent, driven by high-single-digit growth in wholesale. Revenues in Asia-Pacific and Latin America both continued to increase at double-digit rates, with Asia-Pacific up 16 percent and Latin America, 49 percent, driven by strong growth in both wholesale and DTC.

Gross margin declined to 44.8 percent, down 5.1 percentage points, while operating profit amounted to 60 million euros in the quarter, reflecting an operating margin of 1.1 percent. Net loss amounted to 24 million euros compared to 2022 net income of 310 million euros, while basic EPS decreased to negative 0.18 euros compared to positive 1.60 euros last year.

Adidas expects expects to report operating loss of 700 million euros in 2023

For the full year 2023, Adidas continues to expect currency-neutral revenues to decline at a high-single-digit rate as macroeconomic challenges and geopolitical tensions persist.

The company added that elevated recession risks in North America and Europe 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 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 breakeven level in 2023. The company also expects to report an operating loss of 700 million euros in 2023.