Adidas’ second-quarter results hold encouraging signs, including securing an incremental profit of €150 million ($164 mm) from the first drop of leftover Yeezy, significantly improved margins due to better sell-through and less discounting, and a return to double-digit growth in China. However, the laggard continues to be North America, where sales on a currency-neutral basis tumbled 16.4 percent in the period.

However, Bjørn Gulden, Adidas CEO, on a call with analysts, said excess inventories continue to challenge the North American turnaround.

He elaborated, “There’s still a lot of inventory in the market, not only ours but also ours. And the problem is, of course, some of that inventory is not great and that means that the sell-through is slow, and we have to work through that for a while. And because of that. Also, the discounts are high in general and also on our products.”

Gulden said that similar to other markets facing elevated inventories, the North American team has adopted a “conservative sell-in strategy,” which he described as “not pushing in more merchandise but trying to do it very dedicated.”

He also said Adidas has “some very, very good best sellers” that the brand is working to scale but are currently too small to make a significant impact on sales. Gulden said, “Which means that we hope we can turn it around to be something positive. And, of course, that will create more brand heat and we can get into ‘24 looking better.”

One “very positive” development for the North American region is Lionel Messi’s signing with Inter Miami, assisted by David Beckham, co-owner of the team and a long-time Adidas ambassador.

Gulden noted that the market has seen a “real boom” in Inter Miami product sales following the signing while noting that Adidas hasn’t been able to fully capitalize on the demand for Messi Miami products due to challenging turnaround times. Gulden said, “That will be what should I say ‘higher demand than supply’ for a while. But sometimes that’s good and I’m sure we’ll fill the demand as to next weeks and months pass.”

He noted that Adidas earlier this year signed Messi to a long-term contract to benefit from the relationship well into the future.

Gulden said another focus for Adidas in North America is women’s basketball and the brand has introduced the Exhibitor Select, a women’s basketball style that’s worn by all of Adidas’ WNBA ambassadors. The brand’s WNBA players include Hailey Van Lith, Candace Parker, Chelsea Gray, Alysha Clark, and Erica Wheeler. A recent signing was Aliyah Boston. Said Gulden, “We are continuing to invest in more players because we really believe in the women’s NBA. And as a part of our focus on women’s sports, this is extremely important for us in the American market.”

Men’s basketball also remains a priority around jumpstarting growth in North America. Gulden said, “We know we are not performing the way you would expect and also the way we should.”

He said that with an NBA ambassador lineup led by James Harden, Donovan Mitchell, Trae Young, and Anthony Edwards, “we know we can do and have to do a better job.”

Finally, also important to the U.S. market will be the upcoming footwear launch as part of Adidas’ collaboration with Fear of God, led by Jerry Lorenzo, which will impact both the performance and lifestyle segments.

He said the Fear of God collaboration will start flowing into the market in the second half of this year and then scale in ’24. Gulden said, “We feel we are in better shape in this business than we’ve been for a long time.”

Gulden concluded on North America, “So, a lot of activities going on between global and North American business to strengthen our business because, as you know, it’s a very important market for us and the industry. And when you look at the numbers, of course, we’re not happy with the performance, but again it’s in a very, very difficult market where many are struggling.”

Overall, second-quarter results were in line with a forecast provided on July 24 that saw Adidas raise its guidance for sales and earnings for the year due to the positive impact of the first sale of some of its Yeezy inventory and a slightly better-than-expected sales and margins for the core Adidas business in the first half of the year.

Net sales on a reported basis in the North America region were down 18.1 percent in the quarter to €1.4 billion ($1.5mm). In the half, revenues in North America were down 17.9 percent (-17.2 percent reported) to €2.58 billion.

Among other regions, EMEA also saw weakness, down 0.8 percent on a currency-neutral basis to €1.98 billion. Gulden said Adidas “should be strong in the home market,” and believes the brand “will start to build market share again” by 2024 by “chasing more of a commercial business than we’ve done.” He cited benefits from the signing of a 10-year extension with Manchester United and signing on as a kit sponsor for India’s national cricket team.

The top-performing region was Latin America, which grew 29.8 percent on a  currency-neutral basis to €596 million. The region was boosted by strong growth in Argentina, where Messi is from, as well as Adidas having four countries from the region in the Women’s World Cup.

China delivered 16.4 percent currency-neutral growth to €766 million after being down 9.4 percent in the first quarter. The gains reflected double-digit sell-out growth in both wholesale and own retail. Revenues in Asia-Pacific increased 7 percent currency-neutral (+0.1 percent reported) to €550 million.

Photo courtesy Adidas x Hailey Van Lith