Adidas Faces Currency Challenges and Yeezy Write-Off, Plans to Sell Remaining Inventory

Adidas and Kanye West
Adidas and Kanye West

Adidas has reported a challenging financial landscape in its preliminary results, citing flat currency-neutral revenues for 2023 despite the devaluation of the Argentine Peso in the fourth quarter.

Sales, in reported terms, declined by 5 percent to 21.4 billion euros in 2023, with adverse currency movements impacting the company’s top-line development by over 1,000 million euros. This currency drag is expected to persist in 2024.

Adidas CEO Bjørn Gulden acknowledged the company’s current financial struggles but expressed confidence in its trajectory toward improvement. He stated, “We do of course know that our financial performance is not good. But we are on the way to making Adidas a good company again. As we said from the beginning, we just need the time to solidly build it up again.”

The sales decline in 2023 was influenced by reduced sell-in to the wholesale channel as part of efforts to address high inventory levels. The discontinuation of the Yeezy business also had a negative impact, contributing to a drag of approximately 500 million euros on the year-over-year comparison. Excluding Yeezy revenues, currency-neutral revenues saw a 2 percent increase in 2023.

Negative currency effects weighed on the company’s gross margin development throughout the year. However, Adidas managed a slight improvement, with the gross margin reaching 47.5 percent in 2023.

Despite facing challenges, Adidas generated an operating profit of 268 million euros, surpassing expectations as the company was initially anticipating an operating loss of 100 million euros.

Looking ahead to 2024, Adidas anticipates mid-single-digit growth in currency-neutral sales. The company plans to sell the remaining Yeezy inventory at cost, expecting sales of around 250 million euros in 2024. Excluding Yeezy revenues, the top-line guidance indicates high-single-digit growth in the underlying Adidas business.

Adidas expects to achieve an operating profit of approximately 500 million euros in 2024, factoring in the impact of currency headwinds and the planned sale of Yeezy products. Despite projecting a flattish start in sales for 2024, the company aims for incremental improvement each quarter, envisioning a return to double-digit growth and a 10 percent operating margin in the coming years.