Adidas to sell remaining Yeezy inventory after one billion euros currency hit

In a preliminary results statement, Adidas said currency-neutral revenues were flat versus the prior year-level in 2023 despite the drag from the devaluation of the Argentine Peso in the fourth quarter.

In reported terms, sales were down 5 percent to 21.4 billion euros in 2023 including the negative translation impact of more than one billion euros from unfavourable currency movements, which are expected to remain a drag on the company’s top-line development in 2024.

Commenting on the update, Adidas CEO Bjørn Gulden said: “We do of course know that our financial performance is not good. But we are on the way to making Adidas a good company again. As we said from the beginning, we just need the time to solidly build it up again.”

Currency fluctuations and Yeezy write-off weigh on Adidas results

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

In addition, the discontinuation of the Yeezy business had a negative effect on the top-line development during the year, which represented a drag of around 500 million euros on the year-over-year comparison. The two Yeezy drops positively impacted net sales in an amount of around 750 million euros in 2023 compared to over 1,200 million euros of Yeezy revenues in 2022. Excluding the Yeezy revenues in both years, currency-neutral revenues were up 2 percent in 2023.

Negative currency effects have also been significantly weighing on the company’s gross margin development throughout the year. However, the Adidas gross margin improved 0.2 percentage points to a level of 47.5 percent in 2023.

The company added that despite the severe impact from the devaluation of the Argentine Peso at the end of the year, Adidas generated an operating profit of 268 million euros versus 669 million euros in 2022. According to its latest guidance the company was expecting an operating loss of 100 million euros.

The company’s underlying operating profit reached around 200 million euros in 2023 compared to the latest guidance of around 100 million euros and reflects the operational outperformance in the fourth quarter.

Adidas issues financial guidance for 2024

In 2024, the company expects currency-neutral sales to grow at a mid-single-digit rate.

Adidas said, this top-line guidance assumes that the company will sell the remaining Yeezy inventory at cost, which would result in sales of around 250 million euros in 2024. 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.

The planned sale of Yeezy products is currently expected to have no effect on the company’s operating profit this year. Unfavourable currency effects are projected to weigh significantly on the profitability in 2024 as they are expected to continue to impact both reported revenues and the gross margin development.

Taking all of this into account – the expected translational and transactional FX headwind as well as the current Yeezy assumptions – Adidas expects to generate an operating profit of around 500 million euros in 2024.

“For 2024, we expect sales to start flattish, but to then improve every quarter. This year is the next building block needed to bring Adidas back to be a company with double-digit growth and 10 percent operating margin,” added Gulden.