Adidas Reports First Annual Loss in 30 Years, Warns of Declining US Sales

German Sportswear Giant Grapples with Inventory Woes and Market Challenges

Mar 13, 2024 - 10:47
Mar 13, 2024 - 10:53
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Adidas Reports First Annual Loss in 30 Years, Warns of Declining US Sales
Adidas Reports First Annual Loss in 30 Years, Warns of Declining US Sales

Adidas, the renowned German sportswear company, has announced its first annual loss in over three decades. This news comes alongside a cautionary forecast regarding declining sales in the crucial North American market. The brand attributes these challenges to ongoing struggles faced by sportswear retailers in the United States, who are grappling with high inventory levels.

Adidas has been navigating a turbulent period, particularly since severing ties with Kanye West in October 2022. This decision led to the suspension of sales for the highly lucrative Yeezy sneaker line. Under the leadership of CEO Bjorn Gulden, who assumed the role in recent years, efforts were made to address this setback. Notably, sales of Yeezy sneakers were resumed to clear remaining stock. Additionally, initiatives were undertaken to enhance the popularity of flagship products like Samba and Gazelle shoes, while fostering stronger relationships with retailers. These strategic moves have helped Adidas experience a rebound in its stock performance, surpassing rivals such as Nike and Puma.

Despite the challenging landscape, Gulden expressed a degree of optimism, noting that the company's performance in 2023 exceeded initial expectations. However, concerns persist regarding the outlook for the North American market, with Adidas projecting a potential 5% decline in sales for the region this year. The impact of lower demand and surplus inventory has been particularly pronounced, leading to a 21% drop in North American sales in the fourth quarter of the previous year.

Addressing inventory management challenges, Gulden highlighted the success of outlet store initiatives, which contributed to a significant reduction in inventories by 24% in 2023. However, the company faces additional hurdles, including shipment delays resulting from global disruptions such as the Red Sea crisis. Chief Financial Officer Harm Ohlmeyer cautioned that prolonged disruptions could adversely affect working capital.

Adidas remains steadfast in its commitment to reclaim market share and drive growth, even amidst a broader decline in consumer demand for sportswear. The company anticipates improvements in its underlying business, excluding the Yeezy brand, with a targeted growth rate of at least 10% in the latter half of 2024. Notably, the resurgence of trends favoring low-rise suede sneakers like the Samba and Gazelle has provided a boon for Adidas, contributing to an 8% increase in footwear sales.

Observers note that despite the challenges, Adidas has shown promising signs of progress under Gulden's leadership. Brand sentiment is on the rise, evidenced by a reduction in discounted product sales. Additionally, the company expects a robust recovery in China, with double-digit sales growth anticipated following an 8% increase in 2023.

Looking ahead, Adidas remains cautious about the performance of its remaining Yeezy products. Despite previous successes, uncertainties linger regarding consumer demand for these offerings. Nevertheless, the company remains committed to its philanthropic efforts, allocating funds for charitable causes focused on combating antisemitism and racism.

Despite reporting a net loss of 58 million euros, Adidas intends to maintain its dividend payout, signaling confidence in its long-term prospects. The company's resilience in the face of adversity underscores its commitment to weathering market challenges and emerging stronger in the future.

Also Read: Adidas Launches New Wave of Exclusive Yeezy Shoes for Clearance

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