- First quarter results beat estimates
- Adidas confirms full year outlook
- But discontinuation of Yeezy business is hurting sales
Struggling German sportswear giant Adidas (ADS:XETRA) sprinted in with better than feared first quarter results, sending shares in the sneakers-to-jerseys seller 6% higher to €166 on Friday.
However, CEO Bjorn Gulden conceded 2023 will be a ‘bumpy year with disappointing numbers’ for the athletic apparel company, which recently ended its partnership with Ye, the controversial rapper formerly known as Kanye West, in a move Adidas admits is hurting sales.
LAMENTING THE YEEZY LOSS
Adidas’ sales softened 1% to €5.274 billion in the first quarter to March 2023, yet the company managed to deliver a higher than expected operating profit of €60 million.
That was ahead of the €15 million analysts were calling for, albeit well below the €437 million generated in the first quarter of 2022.
Bavaria-based Adidas conceded the discontinuation of the Yeezy business represented a year-on-year sales drag of ‘around €400 million’.
Sales in North America were worst hit by the Yeezy debacle, showing a 20% decline.
For the uninitiated, Adidas cut ties with the designer and rapper known as Ye late last year after he posted anti-Semitic comments on social media.
Adidas’ gross margin weakened 5.1 percentage points to 44.8% in the quarter due to the negative Yeezy impact, not to mention higher supply chain costs, increased discounting and unhelpful currency swings.
The world’s second largest sportswear manufacturer behind Nike (NKE:NYSE), Adidas is sticking to its guidance for 2023, having warned of a €700 million operating loss if it decides to completely write off Yeezy stock.
WHAT DID THE CEO SAY?
Gulden said the quarter ended ‘a little better than we had expected with flattish sales and a small operating profit of €60 million. Sales growth excluding Yeezy was 9%. Great double-digit growth in Latin America and Asia-Pacific, and slight growth in EMEA despite Russia were in line with our plan. Total revenues in Greater China were still down 9%, but we achieved double-digit sell-out growth. This was better than expected and makes us optimistic for the rest of the year.’
Adidas’ boss admitted inventories remain too high, but stock levels are ‘already €300 million lower than at the beginning of the year. We continue to work hard to normalise our inventory levels during the year. This is crucial for us to be able to lower discount levels, increase our full price business and re-build brand heat again.’
