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Adidas sees Q4 operating loss of £645m following Kanye West termination

Tom Shearsmith
08 March 2023

Sportswear and footwear giant Adidas has reported that currency-neutral revenues declined 1% in Q4 as a result of the termination of its partnership with Kayne West.

Q4 also saw an operating loss of £645.2 million (€724 million), with a net loss from continuing operations of €482 million.

Q4 saw a 50% revenue decline in Greater China due to the challenging market environment, company-specific challenges as well as significant inventory takebacks. However, revenues in Latin America increased 47%, Asia-Pacific by 16%, and EMEA by 12%.

Looking at the full financial year, currency-neutral revenues were up 1% - reflecting growth in all markets except Greater China. However, Adidas is not immune to macroeconomic challenges and saw a gross margin decline to 47.3% due to a strong increase in supply chain costs and heavy discounting.

Other key FY 2022 information:

  • Operating profit at £596 million (€669 million), including one-off costs of £278 million (€312 million)
  • Operating margin decreases to 3.0%
  • Net income (continuing operations) of £226 million (€254 million) including £312 million (€350 million) one-off cost.
  • Executive and Supervisory boards propose dividend of €0.70 per share

Bjørn Gulden, CEO of Adidas, said: “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.

“We will work on strengthening our people and the adidas culture. Motivated people and a strong adidas culture are the most important factors to build a unique adidas business model again. 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.”

Looking ahead, Adidas expects currency-neutral revenues to decline at a high-single-digit rate in the new financial year as macroeconomic challenges and geopolitical tensions continue. The company also said that it is cautious about higher recession risks in Europe and North America as well as uncertainty around the recovery in Greater China.

The company’s revenue will also be impacted by initiatives to significantly reduce high inventory levels. The company also is continuing to review future options for the utilisation of its Yeezy inventory, with the guidance already reflecting a potential revenue loss of £1.06 billion (€1.2 billion) from potentially not selling the existing stock.

Adidas terminated its partnership with Ye, formerly known as Kanye West, after the American rapper and designer made a series of offensive and antisemitic comments.

This follows the news that Adidas will launch a new category called ‘Sportswear’ “to occupy the space between the brand’s well-known Performance and Originals labels”, its first new label for 50 years.

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