German sportswear giant Adidas (ADSGn.DE) has reported its first net loss since 1992, marking a pivotal moment in its storied history. This development comes as the company grapples with the aftermath of terminating its partnership with American rapper and designer Kanye West, now known as Ye.
The termination of the partnership, which occurred in October 2022, led Adidas to suspend sales of the highly profitable Yeezy sneaker line, contributing to the company’s financial woes. CEO Bjorn Gulden, who has been at the helm during this challenging period, has been working diligently to steer the brand back on course.
In his efforts to rejuvenate the brand, Gulden resumed sales of Yeezy sneakers to clear remaining stock while focusing on boosting the popularity of other products like the Samba and Gazelle shoes. Despite facing setbacks, Adidas shares have shown signs of recovery, outperforming competitors like Nike and Puma.
“While 2023 ended better than what I had expected at the beginning of the year, it was by far not good enough,” commented Gulden, acknowledging the company’s struggles.
Looking ahead, Adidas anticipates an improvement in its underlying business, excluding Yeezy, with double-digit growth projected for the second half of 2024. Despite posting a net loss of 58 million euros, Adidas remains committed to its shareholders by proposing an unchanged dividend of 0.70 euros ($0.7650) per share for its 2023 performance.
Adidas is banking on its ability to regain market share from rivals, even amidst a decline in consumers’ overall appetite for sportswear. The company has benefited from trends favoring low-rise suede “terrace” sneakers like the Samba and Gazelle, with footwear sales showing growth in the fourth quarter despite a decline in apparel sales.
“Things have clearly been going in the right direction at Adidas since Bjorn Gulden took over,” remarked Thomas Joekel, a portfolio manager at Union Investment, highlighting the positive trajectory of the brand under Gulden’s leadership.
However, challenges persist, particularly in regions like North America, where Adidas expects sales to decline due to high overstocks. In contrast, the company anticipates a stronger recovery in China, with sales expected to grow at a double-digit rate.
The fate of Adidas’s remaining Yeezy products remains uncertain, with the company indicating that it will sell the sneakers “at least at cost.” Despite the successful management of previous Yeezy sales, the demand for the latest drop on Feb. 26 is difficult to predict.
Adidas generated significant revenue from Yeezy sales last year, resulting in a substantial profit. However, in a gesture towards social responsibility, the company has allocated funds for donations to charities combating antisemitism and racism, reflecting its commitment to broader societal issues.
