Adidas posts loss, expects to return to top-line growth in 2024

In 2023, currency-neutral revenues at Adidas were flat compared to the prior year, while in euro terms, revenues declined 5 percent to 21.4 billion euros.

Annual net loss from continuing operations was 58 million euros compared to net income of 254 million euros in 2022 and both basic and diluted earnings per share (EPS) from continuing operations reached negative 0.67 euros.

In 2024, the company expects macroeconomic challenges and geopolitical tensions to persist. Against this backdrop, Adidas plans to return to top-line growth. As a result, the company expects currency-neutral sales to grow at a mid-single-digit rate in 2024.

Commenting on the trading update, Adidas CEO Bjørn Gulden said: “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 euros.”

Adidas financial performance in FY 2023

The company said in a statement that the top-line development in 2023 was impacted by significantly reduced sell-in to the wholesale channel as part of the company’s successful initiatives to reduce high inventory levels in the trade.

In addition, the discontinuation of the Yeezy business represented a drag of around 500 million euros on the year-over-year comparison during 2023. Excluding the Yeezy revenues in both years, currency-neutral revenues grew 2 percent in 2023.

Despite the significant Yeezy impact, the company added, currency-neutral footwear sales were up 4 percent in 2023, reflecting double-digit growth in football as well as in Specialist and US Sports. A high-single-digit increase in Originals also contributed to the top-line improvement in footwear.

Apparel revenues were down 6 percent on a currency-neutral basis, as this product category was particularly impacted by the high inventory levels in the marketplace and the company’s disciplined sell-in to the wholesale channel in response to it. Apparel revenues in outdoor and basketball grew at double-digit rates.

Currency-neutral accessories sales were up 3 percent, reflecting a double-digit increase in football.

As a result of the company’s initiatives to reduce high inventory levels, currency-neutral sales in wholesale declined 4 percent despite double-digit growth in Latin America and Greater China. At the same time, direct-to-consumer (DTC) revenues grew 3 percent driven by 12 percent growth in Adidas’ own retail stores. The company’s e-commerce business declined 5 percent due to the Yeezy impact.

From a market perspective, currency-neutral revenues in North America declined 16 percent as this market was particularly affected by the negative Yeezy impact as well as the company’s conservative sell-in strategy to reduce high inventory levels.

Currency-neutral sales in Greater China were up 8 percent, driven by strong double-digit growth in both wholesale and Adidas’ own retail stores. In EMEA, currency-neutral revenues were flat. Revenues in Asia-Pacific grew 7 percent, driven by double-digit growth in the company’s own distribution channels. In Latin America sales increased 22 percent, reflecting double-digit improvements in both wholesale and DTC.

The company’s gross margin increased 0.2 percentage points to 47.5 percent, while operating profit reached 268 million euros in 2023, reflecting an operating margin of 1.3 percent.

The adidas AG Executive and Supervisory Boards will recommend paying a stable dividend of 0.70 euros per dividend-entitled share to shareholders at the Annual General Meeting on May 16, 2024.

Highlights of Adidas’ Q4 performance

Currency-neutral revenues in the fourth quarter declined 2 percent, including a drag of around 5 percentage points related to the devaluation of the Argentine Peso. In euro terms, revenues declined 8 percent to 4.8 billion euros in Q4.

The company said that despite the significant Yeezy impact, currency-neutral footwear sales were up 8 percent in the fourth quarter driven by strong double-digit growth in Originals and skateboarding. Apparel revenues declined 13 percent during the quarter and sales of accessories declined 1 percent in the fourth quarter.

From a channel perspective, the company’s top-line development in the fourth quarter reflects declines in both wholesale and DTC, which were both mainly related to declines in North America.

Sales in Adidas own retail stores increased 9 percent, reflecting double-digit improvements in EMEA, Greater China as well as Asia-Pacific. E-commerce revenues decreased 12 percent during the quarter due to the Yeezy impact.

Currency-neutral sales in North America decreased 21 percent, in EMEA, revenues declined 7 percent, while overall sales were flat in Asia-Pacific, the company recorded double-digit growth in its DTC business. As a result of the significant devaluation of the Argentine Peso, currency-neutral sales in Latin America increased 1 percent driven by growth in DTC and Greater China posted a revenue increase of 37 percent, reflecting strong growth in both wholesale and retail.

In the fourth quarter, the gross margin increased by 5.5 percentage points to 44.6 percent. Net loss from continuing operations amounted to 401 million euros in the quarter and both basic and diluted EPS were negative 2.36 euros.

Adidas expects 2024 currency-neutral sales to increase mid-single-digit

The company's top-line guidance assumes that Adidas will sell the remaining Yeezy inventory at cost, which would result in sales of around 250 million euros in 2024 compared to Yeezy revenues of around 750 million euros in 2023.

Excluding the Yeezy revenues in both years, the top-line guidance reflects currency-neutral growth at a high-single-digit rate in the underlying Adidas business.

From a market perspective, currency-neutral revenues in the underlying Adidas business – excluding the Yeezy revenues in both years – are expected to grow significantly in all markets except North America. Currency-neutral sales in North America are expected to decline at a mid-single-digit rate in 2024.

Taking the expected translational and transactional FX headwinds into account, Adidas expects to generate an operating profit of around 500 million euros in 2024.