Companies

adidas posts better-than-expected operating profit in 2023

Mar 14, 2024 Germany

The German-based company reported a very challenging 2023, especially in the US market, but remains optimistic for a noticeable improvement in the second half of the current year

“Although by far not good enough, 2023 ended better than what I had expected at the beginning of the year. Despite losing a lot of Yeezy revenue and a very conservative sell-in strategy, we managed to have flat revenues. We expected to have a substantial negative operating result but achieved an operating profit of € 268 million. With a very disciplined go-to-market and buying process, we reduced our inventories by almost € 1.5 billion. With the exception of the US, we now have healthy inventories everywhere”, summed up adidas CEO Bjørn Gulden.

Full Year Results

adidas’ currency-neutral sales in 2023 were flat versus the prior year, which was “significantly better” than the high-single-digit decline originally expected and ahead of the company’s most recent guidance in October of a low-single-digit decline. Accelerating momentum in the underlying business, including the sale of some of the remaining Yeezy inventory, contributed to this performance, said the company. In euro terms, full year revenue decreased by 5% year-over-year to 21.4 billion euros.

Nevertheless, its top-line development last year was impacted by significantly lower sales in the wholesale channel (a decrease of 4% year-over-year) as part of the company’s successful initiatives to reduce high inventory levels in the trade. In addition, the discontinuation of the Yeezy business had a direct negative impact of approximately 500 million euros, as compared to the prior year. Excluding Yeezy sales, currency-neutral revenue grew by 2% in 2023.

From a regional perspective, in 2023, the sportswear company recorded a currency-neutral revenue decline of 16% year-over-year in North America, a market which was “particularly affected by the negative Yeezy impact” as well as its “conservative sell-in strategy to reduce high inventory levels”. In the EMEA region, currency-neutral revenue was flat, with a mid-single-digit increase in DTC offset by a decline in wholesale.

In Greater China and the Asia Pacific regions, adidas delivered a currency-neutral revenue increase of 8% and 7%, respectively, on a comparable basis to 2022, supported by double-digit own-channel growth in both regions. In Latin America, adidas full year sales increased by 22% year-over-year, “reflecting double-digit improvements in both wholesale and DTC”, and despite the negative impact of the devaluation of the Argentine Peso in the fourth quarter of the year.

The company’s gross margin improved by 0.2 percentage points to 47.5% in 2023 from 47.3% in 2022. This was mainly due to a “more favourable business mix and lower freight costs”, which was nevertheless offset by “negative currency effects and increased product costs” and increased discounting levels.

Unlike the initial forecast of an operating loss of 700 million euros, adidas’ operating profit for fiscal 2023 reached 268 million euros and its operating margin was 1.3%, as compared to 669 million euros and 1.3% in the previous year.

The German-based company reported a net loss from continuing operations of 58 million euros last year, on a comparable basis to a net income of 254 million euros in 2022, “reflecting the extraordinarily high tax rate”. Consequently, both basic and diluted earnings per share totalled a negative 0.67 euros.

Fiscal 2024 Outlook

adidas expects currency-neutral sales to grow at a mid-single-digit rate in 2024, assuming that it will sell the remaining Yeezy inventory at cost, which would result in sales of around 250 million euros.

The company anticipates “the sales development to accelerate throughout the year, as growth in the first half will still be negatively impacted by initiatives to bring down elevated inventories in the North American market”. It also forecasts a full year operating profit of around 500 million euros.

Image Credits: dazeddigital.com

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