Adidas this week reported growing sales but a sharp fall in profits in the light of “geopolitical, macroeconomic and company-specific challenges”. It has warned it may post a full-year operating loss in 2023 following the ending of its Yeezy partnership with US rapper Kanye West – also known as Ye – in response to antisemitic comments.
The update came as the sportswear brand reported net sales of €22.5bn (£19.9bn) in the year to December 31 2022. That’s 6% higher than a year earlier. Sales grew fastest in Latin America (+46%), North America (+25%) and EMEA (+10.2%), but fell by 31% in Greater China, where sales continued to be affected by a “challenging market environment”. Net income of €638m (£564.3m) was 70.4% lower than a year earlier. Profits were hit by €350m (£309.6m) in one-off costs from factors including its decision to wind down its Russia business in the wake of the invasion of Ukraine.
The company invested €695m (+4%; £614.7m), with almost half of spending on new retail stores in formats including owned, franchised and concessions. The rest was mostly put into digital, IT and logistics.
Meanwhile, year-end inventories were 49% higher at the end of the year than a year earlier as a result of factors including the ending of the Yeezy partnership. Following the ending of the partnership, Adidas has about €1.2bn (£1.1bn) in unsold stock. The move is expected to hit Adidas profits by €500m (£442.3m) in 2023, and further one-off costs of up to €200m (£176.9m) could result in a full-year operating loss of €700m (£619.2m).
The brand’s stock levels and costs were also affected by higher product and freight costs and changing order patterns as shipping took longer.
“2023 will be a transition year to build the base for 2024 and 2025,” says Bjørn Gulden, chief executive of adidas. “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.”
He adds: “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.”
Adidas is ranked Top100 in RXUK Top500 research.