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In 2023, Adidas experienced stagnant currency-neutral revenues compared to the previous year, while in terms of euros, revenues decreased by 5% to €21.4 billion.
The annual net loss from continuing operations amounted to €58 million, contrasting with a net income of €254 million in 2022. Both basic and diluted earnings per share (EPS) from continuing operations dipped to – €0.67.
Nonetheless, the company is strategising to achieve a resurgence in top-line growth. Consequently, it anticipates currency-neutral sales to increase at a mid-single-digit rate throughout 2024.
Commenting on the trading update, Adidas CEO Bjørn Gulden remarked, “Despite the loss of significant Yeezy revenue and a highly conservative sell-in strategy, we could maintain flat revenues. We initially anticipated a considerable negative operating result yet managed to secure an operating profit of €268 million.”
Analysing Fiscal Year, 2023 Financial Performance
In a statement, the company indicated that a notable reduction in sales to the wholesale channel influenced the top-line development in 2023. This reduction was a deliberate component of the company’s successful efforts to alleviate high inventory levels within the trade.
Moreover, the discontinuation of the Yeezy business negatively impacted approximately €500 million on the year-over-year comparison throughout 2023. Excluding Yeezy revenues in both years, currency-neutral revenues experienced a 2% growth in 2023.
Despite the impact of Yeezy, the company emphasised that currency-neutral footwear sales increased by 4% in 2023. This growth was driven by double-digit increases in football, Specialist, and US Sports categories.
Additionally, a high-single-digit rise in Originals contributed to the overall improvement in footwear sales.
Apparel revenues experienced a 6% decline on a currency-neutral basis, mainly due to the significant impact of high inventory levels in the marketplace and the company’s disciplined approach to sales to the wholesale channel in response to this issue. However, revenues from apparel in the outdoor and basketball segments saw double-digit growth rates.
Currency-neutral accessories sales saw a 3% increase, driven by a double-digit rise in football-related accessories.
Due to the company’s efforts to mitigate high inventory levels, currency-neutral wholesale sales experienced a 4% decline, although there was double-digit growth in Latin America and Greater China. Conversely, direct-to-consumer (DTC) revenues increased by 3%, primarily fuelled by a 12% growth in Adidas’ retail stores. However, the company’s e-commerce business saw a 5 percent decline, largely attributed to the impact of Yeezy.
Currency-neutral sales in Greater China saw a notable increase of 8%, propelled by robust double-digit growth in wholesale and Adidas’ retail stores. In the EMEA region, currency-neutral revenues remained stable.
Meanwhile, revenues in the Asia-Pacific region grew by 7%, fuelled by double-digit growth in the company’s distribution channels. Latin America experienced a significant sales increase of 22%, reflecting double-digit improvements in wholesale and direct-to-consumer channels.
In 2023, the company’s gross margin saw a modest increase of 0.2 percentage points, reaching 47.5%. Operating profit for the same period amounted to €268 million, resulting in an operating margin of 1.3%.
The Executive and Supervisory Boards of Adidas AG will propose maintaining a stable dividend of €0.70 per dividend-entitled share for consideration by shareholders at the Annual General Meeting scheduled for May 16, 2024.
Key Insights from Adidas’ Fourth Quarter Performance
In the fourth quarter, currency-neutral revenues decreased by 2%, including a negative effect of approximately 5% points attributed to the devaluation of the Argentine Peso. In terms of euros, revenues declined by 8%, totalling €4.8 billion in Q4.
The company noted that despite the substantial impact of Yeezy, currency-neutral footwear sales witnessed an 8% increase in the fourth quarter, fuelled by robust double-digit growth in Originals and skateboarding categories. Conversely, apparel revenues saw a 13% decline during the quarter, while accessories sales experienced a 1% decrease in the same period.
Looking at the channel breakdown, the company’s top-line performance in the fourth quarter exhibited declines in both wholesale and direct-to-consumer (DTC) channels, primarily driven by decreases in North America.
However, sales in Adidas-owned retail stores saw a 9% increase, showcasing double-digit enhancements in EMEA, Greater China, and Asia-Pacific regions. Conversely, e-commerce revenues experienced a 12% decrease during the quarter, primarily attributed to the impact of Yeezy.
In North America, currency-neutral sales saw a notable decrease of 21%, while in EMEA, revenues declined by 7%. However, overall sales remained flat in Asia-Pacific, with the company witnessing double-digit growth in its direct-to-consumer (DTC) business.
Despite the significant devaluation of the Argentine Peso, currency-neutral sales in Latin America increased by 1%, driven by growth in both DTC and Greater China, which posted a revenue increase of 37%, reflecting robust growth in both wholesale and retail segments.
The gross margin surged by 5.5% to 44.6% during the fourth quarter. However, the company reported a net loss from continuing operations amounting to €401 million for the quarter, with both primary and diluted earnings per share (EPS) at -€2.36.
Adidas Forecasts Mid-Single-Digit Growth in 2024 Currency-Neutral Sales
The company’s top-line guidance is predicated on the assumption that Adidas will liquidate the remaining Yeezy inventory at cost, projecting sales of approximately €250 million in 2024, in contrast to Yeezy revenues of around €750 million in 2023.
Excluding the Yeezy revenues in both years, the top-line guidance indicates currency-neutral growth at a high-single-digit rate in the core Adidas business.
From the market perspective, currency-neutral revenues in the core Adidas business, excluding Yeezy revenues in both years, are anticipated to witness significant growth across all markets except North America. In North America, currency-neutral sales are projected to decline mid-single-digit in 2024.
Considering the expected challenges posed by translational and transactional foreign exchange (FX) factors, Adidas aims to achieve an operating profit of approximately €500 million in 2024.
