Adidas AG, the German sports apparel giant, encountered a notable setback as its shares took a dip following the announcement of a profit forecast for 2024 that fell considerably below market expectations. The primary cause cited for this unexpected turn of events was the impact of negative currency movements, leading to a projected operating profit of approximately €500 million ($542 million). This figure stands in stark contrast to the average analyst estimate of €1.27 billion.
The company revealed its strategy to counterbalance some of the financial implications by continuing to sell the remaining inventory from its discontinued Yeezy partnership, a collaboration with the rapper Ye. Adidas plans to sell this inventory at least at cost, rather than taking a complete write-off, in an effort to salvage some value from the unsold Yeezy products.
CEO Bjorn Gulden expressed a cautious outlook during a webcast, deeming the forecast a “worst-case scenario.” Gulden, in his second year leading Adidas, is no stranger to conservative outlooks, having a history of surpassing early-year projections during his tenure as the CEO of Puma SE.
The market response was evident, with Adidas shares experiencing a decline of as much as 7.4% on the day of the announcement. Notably, the company’s stock has lost half its value since reaching its peak in 2021, reflecting the challenges it has faced in the intervening period.
Despite these challenges, Gulden maintains optimism, expecting a return to growth in 2024 as the company continues its efforts to turn the business around. The currency-neutral sales are projected to rise by a percentage in the mid-single digits, aligning with analysts’ estimates. Gulden emphasized a potential upside to the Yeezy sales, suggesting the company might generate some profit from this collection.
However, Adidas acknowledges additional hurdles, including supply cost increases due to tensions in the Red Sea, leading to higher shipping costs and delays. The company has already secured shipping contracts through the summer, but Gulden highlighted the industry’s challenges, such as three-week shipping delays, particularly in Europe.
In conclusion, Adidas grapples with a complex landscape as it navigates through currency fluctuations, inventory management, and external challenges. The path to recovery involves strategic initiatives and a cautious approach to market dynamics, all under the leadership of CEO Bjorn Gulden.
