Adidas, the German sportswear brand, recently warned of a sales decline in its overstocked North American market in 2024. The company is currently selling off its remaining Yeezy inventory, which has been a significant source of revenue in the past. Currency-neutral sales in North America are expected to decline at a mid-single-digit rate in 2024. Despite this, Adidas is projecting mid-single-digit growth worldwide, highlighting the challenges of macroeconomic conditions and geopolitical tensions.
In 2023, Adidas reported an operating profit of 268 million euros, which was significantly above prior expectations. This result was achieved despite flat currency-neutral sales and the discontinuation of the Yeezy line, which had been a collaborative project with rapper Ye, formerly known as Kanye West. The company faced an operating loss of 377 million euros in the fourth quarter, but the board proposed a flat dividend of 0.70 euros per share.
Adidas confirmed that it would not write off the majority of its Yeezy inventory and instead opted to sell off the remaining shoes at cost. The termination of the Yeezy line due to a partnership termination with Ye led to a drag of around 500 million euros in the year-on-year comparison through 2023. However, the sale of remaining inventory positively impacted net sales by around 750 million euros. CEO Bjørn Gulden emphasized the importance of disciplined inventory management, with the company reducing inventories by almost 1.5 billion euros.
Looking ahead to 2024, Adidas is expecting some growth in the first quarter and a further pick-up in the second half of the year. The company projects an operating profit of around 500 million euros for the year. However, unfavorable currency effects are expected to impact profitability, affecting both reported revenues and gross margin development. Despite these challenges, Gulden expressed confidence in the company’s direction and its ability to rebound.
Adidas aims to return to top-line growth by scaling up successful shoe lines such as Samba and Gazelle, while also introducing new lines. The company is focusing on a disciplined go-to-market approach and a conservative sell-in strategy to ensure sustainable growth moving forward. With the expectation of growth in the second half of the year, Adidas is optimistic about its ability to navigate the challenges in the market and regain its position as a leading sportswear brand.
Mamta Valechha, equity research analyst at Quilter Cheviot, noted that the Adidas brand has shown a clear acceleration following the challenges faced in recent years. While the first half of 2024 may be impacted by efforts to bring down elevated inventories, particularly in North America, demand is expected to pick up in the second half of the year. Valechha highlighted the impact of major sporting events like the Olympics and Euros in driving consumer demand for sportswear products.
Adidas faces challenges in the North American market and the impact of inventory management on its financial performance. However, with a strategic focus on core shoe lines and new product introductions, the company is poised for growth and recovery. Investors are cautiously optimistic about the outlook for Adidas, anticipating a return to top-line growth and a strengthening of the brand in the coming year.
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