The new chief executive of Adidas warned on Thursday that the brand needed time to “put the pieces back together” as the rival to Nike braces for its first operational loss in 31 years.
The German sportswear maker issued its fourth profit warning since July after markets closed, warning investors it could end up with an operating loss of up to €700mn if it cannot find ways to sell its remaining stock of Yeezy sneakers.
The group in October decided to ditch the highly profitable brand it had been operating with rapper and fashion designer Kanye West after its business partner caused an international outcry with antisemitic remarks.
Adidas warned it was likely to lose about €1.2bn in annual sales and €500mn in operating profit this year in the wake of its decision. The group said an internal review into what to do with unsold Yeezy kit was still going on. In a worst-case scenario where it had to write off all remaining inventory, the negative financial impact could double and leave the group with an operating loss of €700mn in 2023, it warned.
Citi analysts called the profit warning “material” and akin to a “reset”.
“The numbers speak for themselves. We are currently not performing the way we should,” said Bjørn Gulden in his first public statement as Adidas CEO. He joined in January from Adidas’s local rival Puma after his predecessor Kasper Rørsted was ousted over a series of profit warnings last summer.
While the stock has risen more than 22 per cent this year, it still trades 50 per cent below its level in the summer of 2021.
The group has been hit heavily not only by the Yeezy debacle but also by its decision to pull out of Russia after the attack on Ukraine and anti-western sentiment in China, as well as the economic repercussions of the pandemic in the Asian country.
“2023 will be a year of transition to set the base to again be a growing and profitable company,” said Gulden, adding that he wanted to “improve our product engine, better serve our distribution and assure that Adidas is a great and fun place to work”.
Based on unaudited numbers, sales in 2022 rose by 1 per cent adjusted for currency swings to €22,5bn, some €300mn below analyst expectations, according to a consensus survey published by the company. Adidas operating profit fell by two-thirds to €669mn, resulting in an operating profit margin of 3 per cent.
In October, Adidas cut its forecast for 2022 to mid-single digit percentage revenue growth and a 4 per cent operating margin. The company will report detailed results for last year on March 8.