Adidas reports initial loss in three decades, cautions on US market

Adidas, the German sportswear giant, reported its first annual loss in over three decades on Wednesday, with North American sales expected to decline further due to high inventories among U.S. sportswear retailers.

Following the termination of its partnership with Kanye West in October 2022, which led to the suspension of the highly profitable Yeezy sneaker line, CEO Bjorn Gulden initiated efforts to clear remaining Yeezy stock while boosting sales of popular products like Samba and Gazelle shoes and enhancing retailer relationships. Despite initial challenges, Adidas shares have rebounded under Gulden's leadership, outperforming competitors like Nike and Puma.

Gulden acknowledged the difficulties faced in 2023 but expressed optimism for improvement. However, Adidas anticipates a 5% decline in North American sales for the current year, attributing it to lower demand and excess inventory in U.S. stores. Sales in North America plummeted by 21% in the fourth quarter and 16% for the entire year.

The company managed to reduce inventories by 1.5 billion euros in 2023, primarily through outlet store sales. However, shipment delays resulting from the Red Sea crisis pose potential challenges to working capital if they persist.

Adidas remains optimistic about regaining market share despite a declining overall interest in sportswear among consumers, which has prompted job cuts at Nike. Excluding Yeezy, Adidas expects its underlying business to improve in 2024, with anticipated growth of at least 10% in the second half. The company has observed growing demand for low-rise suede sneakers like the Samba and Gazelle, particularly in China, where sales are expected to grow at a double-digit rate after an 8% increase in 2023.

 Adidas plans to sell remaining Yeezy products at cost, with revenue from Yeezy sales in 2023 totaling 750 million euros and a profit of 300 million euros. A portion of the proceeds, amounting to 140 million euros, will be allocated to charities combating anti-Semitism and racism. Despite uncertainties surrounding Yeezy sales, Adidas has managed them effectively thus far, with continued success expected