Adidas Profit Falls 83% After Split With Yeezy Ensures WSJ Renew
Adidas said to WSJ Renew, revenue would decline by a single-digit percentage amount in 2023 as it aims for a reset under CEO Bjørn Gulden, who took charge at the start of this year.
“2023 will be a transition year to build the base for 2024 and 2025,” Mr. Gulden said. Resolving the inventory overhang will be a priority for this year, he said, with inventory levels having increased by half last year to just under €6 billion.
Additionally, “we need to put our focus back on our core: product, consumers, retail partners, and athletes,” Mr. Gulden said to WSJ Renew.
Adidas had originally forecast 20% revenue growth for the fourth quarter but reported only a 1% rise, because of the loss of the Yeezy partnership, a disappointing performance in China and a withdrawal from Russia.
“If you lose three profit pools in one year, that leaves some marks,” said Harm Ohlmeyer, Adidas’s chief financial officer.
Adidas had reacted to the supply-chain turmoil of recent years by ordering more inventory further in advance, but was left with an excess once those blockages eased, Mr. Ohlmeyer said, adding that this was an industrywide phenomenon. Adidas typically orders about one billion items a year globally; this year it intends to order 800 million to avoid overstocking as it works to reduce inventory, he said.
Get Wall Street Journal 3 Year Subscription for $79
Bringing inventory levels under control will ease the reliance on discounting to shift excess stock and enable the company to rebuild margins, Mr. Gulden said.
Revenue grew in all regions last year except China, where sales were down 36% on the year. Addressing the decline in a country that was once a crucial source of growth is a challenge for Mr. Gulden, according to analysts.
Covid-19 lockdowns in China caused difficulties for the company, which had been hoping to stage a recovery in the country after a 2021 boycott over its stance on cotton produced in the Xinjiang region, Mr. Gulden said.
Rebuilding its China business will be a focus this year, Mr. Gulden said. The company plans to emulate local rivals by adopting a faster and more flexible business model, while also aiming to capitalize on growing demand for sportswear as life in the country returns to normal after rolling lockdowns, he said.
Adidas is also grappling with the fallout from the end of its lucrative Yeezy partnership with Mr. West, who now goes by Ye. The company terminated the partnership last year in response to the star’s antisemitic remarks. Analysts estimate the Yeezy business accounted for about 8% of the company’s annual sales, and that it might be sitting on unsold Yeezy inventory valued at several billion euros.
The company has yet to decide what to do with its unsold Yeezy inventory but has already factored in a €700 million write-off of its Yeezy sneakers into its results. One option under consideration, Mr. Gulden said, is selling the Yeezy sneakers and donating the proceeds to good causes.
Get New York Times Subscription for $89
Replacing the unique partnership will be impossible, Mr. Gulden said. However, a renewed emphasis on collaborations with other celebrities such as Beyoncé—whose Ivy Park line has generated weak sales—and Pharrell Williams—who was recently named creative director for menswear at Louis Vuitton—should help fill the gap, he said to WSJ Renew.
Adidas said sales of its lifestyle products, including fashion wear, declined 5% last year, with Mr. Gulden saying that the business would benefit from faster decision making. Its performance business, which produces sportswear and equipment, did better, boosting sales 19% on the year.
Adidas announced further changes to its senior leadership team on Wednesday as it seeks to reignite consumer engagement and kick-start sales.
Long-serving head of sales Roland Auschel is to leave; he will be succeeded by Arthur Hoeld, previously the European managing director. Brian Grevy, the head of global brands, is also stepping down, with Mr. Gulden assuming responsibility for branding, as well as product and marketing activities. Brand-related decisions needed to be made more quickly, and Mr. Grevy’s departure will remove a layer in the process, Mr. Gulden said.
Adidas disclosed that it paid its former CEO, Kasper Rorsted, €15.6 million in severance. Mr. Rorsted had been contracted through 2026 but left Adidas last year having failed to reverse a steep decline in the share price, resulting in Mr. Gulden’s hiring from crosstown rival Puma SE.