German sporting goods maker Adidas reported a net profit of €612 million in 2022, which is 71.1% lower than in the previous year due to inflation and issues in China, as well as discontinuing its collaboration with U.S. rapper Kanye West. Adidas also confirmed that it expects to incur a loss of €700 million in 2023, which includes a €500 million write-down of Yeezy inventory and €200 million in strategic review costs.
Adidas is exploring options to use the Yeezy inventory, but if it fails to do so, it will have to write down its value. The company’s new CEO, Bjørn Gulden, stated that 2023 will be a transition year to build the foundation for 2024 and 2025 by reducing inventories and lowering discounts to achieve a profitable business again in 2024.
Adidas suffered an attributable net loss of €512 million in the fourth quarter of 2022, compared to a profit of €202 million in the same quarter of 2021, due to the discontinuation of the Yeezy collaboration. Operating profit also declined by 33.7% in 2022 to €669 million, reflecting an operating profitability margin of 3% compared to 9.4% in 2021.
While revenue increased in 2022 to €22,511 million (+6% or +1% net of exchange rate effects), sales fell by 36% in China, but rose in Latin America (+44%) and North America (+12%). Adidas terminated its activities in Russia, resulting in less sales growth in Europe. The company expects sales to decline by high single digits in 2023, with operating profit at a level where revenues equal costs, due to continued macroeconomic difficulties and geopolitical tensions. Adidas believes that there is a high risk of a recession in Europe and North America and that uncertainty about China’s recovery remains. If Adidas is unable to sell its Yeezy inventory, it predicts a revenue loss of €1.2 billion, which will have a negative operating impact of €500 million.
The management and supervisory board will propose to cut the dividend payout sharply to €0.70 per share (€3.30 per share for the 2021 financial year).