Home Fashion Adidas slumps as weak profit forecast follows currency hit

Adidas slumps as weak profit forecast follows currency hit

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Bloomberg

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Feb 1, 2024

Adidas AG slumped after the German sports apparel maker said negative currency movements mean its profit this year will be less than half of what analysts were expecting.

Reuters

Operating profit should be around €500 million ($542 million) in 2024, Adidas said late Wednesday. That’s below the average analyst estimate of €1.27 billion. The company plans to mitigate some of the damage by continuing to sell left-over inventory from its defunct Yeezy partnership with the rapper Ye. 

“Everything we are saying is conservative,” Chief Executive Officer Bjorn Gulden said on a webcast Thursday, calling the forecast a “worst-case scenario.”

Gulden is entering his second year at the helm of Adidas, where he’s inherited a collection of crises from his predecessor. The Norwegian has a history of offering conservative outlooks early in the year and repeatedly outperforming them, a hallmark of his decade-long tenure as CEO of crosstown rival Puma SE. 

Adidas shares fell as much as 7.4% Thursday. The stock has lost half its value since a peak in 2021. Rivals Nike Inc. and Under Armour Inc. dropped in US trading Wednesday.

The German shoemaker said it will sell €250 million of remaining Yeezy inventory at least at cost, rather than writing it off.

Despite a €1 billion currency hit from factors including a devaluation of the Argentine peso in 2023, Adidas forecast a return to growth this year as it continues its turnaround efforts in the face of mounting concerns about global demand for sneakers and sports gear.

Currency-neutral sales will probably rise by a percentage in the mid single digits in 2024, Adidas said. That’s roughly in line with what analysts were estimating. The company expects sales to start out “flattish” this year and then improve every quarter.

Cautious outlook

“Some healthy dose of caution is embedded in today’s words,” wrote James Grzinic, an analyst at Jefferies. Gulden said on a call Thursday that there’s a potential upside to the Yeezy sales, indicating that Adidas might make some profit on the collection.

In 2023, Adidas’s currency-neutral revenue stayed flat, which was an improvement upon earlier targets, the company said.   

Investors have been looking for signs of weakness in the sector after Nike raised doubts in December about consumer demand in China and around the world and Puma warned about the impact of hyperinflation in Argentina.

The company could conceivably boost its earnings if it can make more money off of its remaining Yeezy inventory rather than merely recoup costs, as is its current plan. It’s now only written off €12 million of products that was “either damaged or very broken in sizes,” Gulden said. He said Thursday there’s a potential to a better performance for Yeezy sales, and Adidas is planning a third bulk sale of the product.

Bloomberg Intelligence analyst Sydney Goodman said that execution in areas such as developing new products and strengthening wholesale relationships will be key to improving profitability. 

“Getting back to a double-digit operating margin may take more time,” Goodman wrote in a research note. 

Gulden reiterated the company’s goal of a 10% operating margin in 2026 on a webcast Thursday.

Tension in the Red Sea is leading to higher supply costs in the short term, Gulden said, adding that the company already signed shipping contracts through the summer.

“Spot rates are exploding again,” he said, adding that the industry is seeing three-week shipping delays, especially in Europe, and it’s more expensive now if Adidas tries to ship additional product.

 



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