- Adidas announced preliminary financial guidance for 2023 on Thursday.
- Adidas expects sales to fall $1.28 billion in 2023 if it doesn’t sell leftover Yeezy inventory.
- But analysts say the German sportswear company’s problems run deeper than Yeezy.
Adidas released its 2023 financial guidance earlier than expected on Thursday.
The company’s guidance started off bleak as sales are expected to fall for the year following the termination of the Yeezy partnership. The company expects a €1.2 billion drop in sales, or about $1.28 billion, and an operating profit of €500 million, or about $537 million, if it doesn’t sell its leftover Yeezy inventory. A strategic review of the deal by Adidas will cost the company another 200 million euros.
Against this backdrop, Adidas is forecasting a high-single-digit decline in sales for 2023.
But analysts say its problems run deeper than Yeezy. Excluding the impact of the Yeezy brand, its forecasts for the coming year imply that it still expects a significant drop in sales and a drop in profits.
What went wrong at Adidas?
“The drop in sales is affecting more than just Yeezy,” Bernstein analyst Aneesha Sherman wrote in a note to clients early Friday.
According to Bernstein’s research, the company’s forecast of a high-single-digit sales decline in 2023, excluding the $1.2 billion in lost sales from the Yeezy brand, suggests Adidas is also facing a $2 billion sales decline. dollars counts.
“We are concerned about the underlying health of the company that would result in such a drastic reduction in guidance even after the effects of Yeezy have been eliminated,” Sherman said.
But she still doubts if the company has reached its “sink” moment — the idea that it will air out all its dirty laundry at once and deliver a combined hit of negative news to investors.
“Maybe there are more shoes to drop,” she said.
Adidas has relied heavily on collaborators in recent years, including music artists Bad Bunny, Pharrell Williams and Beyoncé. However, the Wall Street Journal reported that sales of the Ivy Park line with Adidas fell more than 50% last year to about $40 million, well below Adidas’ forecast of $250 million.
Ye, formerly known as Kanye West, was a huge hit for Adidas. Cowen estimates the brand generated $1.2 billion in sales last year before Adidas ended the partnership in October. Ye signed with Adidas in 2013. In addition to the popular Yeezy silhouettes, he also helped propel Adidas’ generic release shoes, like the Ultraboost, into the mainstream by wearing them in public.
“One of the main issues is that Adidas has had trouble finding the ‘next big thing,'” Tom Nikic, senior analyst at Wedbush Securities, said in a note to clients on Thursday, citing the success of the Yeezy brand.
It feels like Adidas’ new CEO Björn Gulden is starting from scratch. His first task is to “clear the deck,” he said.
Adidas’ reset has a broader impact on the industry
As the second largest sportswear brand in the world, Adidas’ reset will have a serious impact on the entire industry.
Competitors like Nike, which has been number one for decades, could take market share from the German sporting goods manufacturer. Adidas’ struggles could also open the door for emerging brands like Hoka One One and On to do the same, Nikic said. Foot Locker, which is in the midst of rebranding its own business, could also be affected. Foot Locker plans to add more Adidas product mix to generate sales over the next few years after Nike reduced inventory at several wholesale partners during the pandemic.
“If the sales declines Adidas expects this year include pressure in North America, it could thwart FL’s plans to diversify its product range,” Nikic said.
According to a note from the Telsey Advisory Group, Adidas’ troubles can be attributed to other factors besides the stockpile of Yeezys. High inventories and promotional activity along with slowing sales in China have impacted both the company and arch-rival Nike.
“We also feel like Adidas is setting the bar low for 2023 to avoid having to make multiple downward revisions as it did in 2022,” TAG wrote.