Adidas has released preliminary results for the full year 2023, reporting that currency-neutral revenues were flat versus the prior-year level, based on preliminary unaudited numbers, and despite the drag from the devaluation of the Argentine Peso in the fourth quarter. The company’s most recent guidance called for a low-single-digit decline for the year. In reported euro terms, sales were said to be down 5 percent to €21.43 billion in 2023, compared to €22.51 billion in 2022.

The company said the reported revenues include the negative translation impact of more than €1.00 billion from unfavorable currency movements, which are expected to remain a drag on the company’s top-line development in 2024.

Adidas said the sales results for 2023 were impacted by significantly reduced sell-in to the wholesale channel as part of the company’s successful initiatives to reduce high inventory levels, as well as the discontinuation of the Yeezy business that had a negative effect on top-line revenues during the year.

This represented a drag of around €500 million on the year-over-year comparison. The two Yeezy drops positively impacted net sales in an amount of around €750 million in 2023, which compares to a total of more than €1,200 million 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. Nevertheless, the Adidas gross margin improved 20 basis points to 47.5 percent of sales in 2023.

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 in 2023, compared to €669 million in 2022. According to its latest guidance, the company was expecting an operating loss of €100 million.

The outperformance was said to be driven by a better-than-expected operational business in Q4 and the company’s decision not to write off the vast majority of its existing Yeezy inventory. The latest outlook still included a potential write-off of its remaining Yeezy inventory in an amount of around €300 million. Following the latest decision, the 2023 operating profit now only includes a low-double-digit million amount of Yeezy-related inventory write-offs. Instead, the company plans to sell the remaining Yeezy product at least at cost in 2024.

The company’s underlying operating profit reached around €200 million in 2023. This compares to the latest guidance of around €100 million and reflects the operational outperformance in the fourth quarter. In its underlying operating profit, Adidas excludes the Yeezy profits generated in 2023 (around €300 million) and adjusts its bottom line for the one-off costs related to the strategic review the company conducted in 2023 (around €200 million) as well as the Yeezy-related write-offs (low-double-digit million euro amount).

“Our fourth quarter developed a little better than expected and we have decided to release preliminary numbers,” said Adidas CEO Bjørn Gulden. “For the full year, our currency-neutral revenues were flat, and we reached an operating profit of €268 million. This is €368 million better than what we were guided for. The improvement is due to the better operating business of around € 100 million and the decision to not write off € 268 million of Yeezy inventory. Our consumer, retail and trade research has shown that we can sell this remaining inventory in 2024 for at least the cost price. This is why we have only written off inventory that was either damaged or very broken in sizes.”

Adidas also issued its financial guidance for the current year.

In 2024, the company expects currency-neutral sales to grow at a mid-single-digit rate. This top-line guidance assumes that Adidas will sell the remaining Yeezy inventory at cost, which would result in sales of around €250 million 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.

As the sale of the remaining Yeezy inventory is currently assumed to occur at cost, the planned sale of the product is currently expected to have no effect on the company’s operating profit in 2024. Unfavorable currency effects are projected to weigh significantly on the company’s profitability in 2024 as they are expected to continue to impact both reported revenues and the gross margin development in 2024.

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 in 2024.

Gulden said the guidance also takes into account the the ongoing challenges in North America, the company’s continued investment in both marketing and sales and a world full of uncertainties.

“For 2024, we expect sales to start flattish, but to then improve every quarter,” Gulden continued. “We expect the underlying Adidas business (excluding Yeezy) to grow in the high-single-digits for the full year and to be up at least 10 percent in H2.”

Gulden said 2024 is the next building block needed to bring Adidas back to being a company with double-digit growth and a 10 percent operating margin.

Image courtesy Adidas