Adidas boss eyes turnaround after Kanye West split By Reuters
© Reuters. FILE PHOTO: Adidas merchandise is seen in an Adidas store on the day the German company ended its partnership with American rapper and designer Kanye West, now known as Ye, in Garden City, New York, United States United States, October 25, 2022. REUTERS / Shannon Agrafe
By Alexander Hübner and Helen Reid
HERZOGENAURACH, Germany/LONDON (Reuters) – Adidas will cut its 2022 dividend, the sportswear maker said on Wednesday, after warning that a split with the entertainer formerly known as Kanye West could push him to his first annual loss in three decades this year.
Chief executive Bjorn Gulden, speaking to investors for the first time since taking the reins on January 1, pledged to rebuild the battered brand after dealing with the fallout from the end of Adidas’ partnership (OTC:) with West, now called Ye, who gave the lucrative Yeezy sneaker line.
Adidas did not say how much the Yeezy brand has made since its first deal with Ye in late 2013, but analysts estimate it accounted for up to 7% of total sales in its peak years.
The company needs to refocus on its core business and faces a “transition” year before returning to profit in 2024, and will return to its sporting roots, Gulden said.
“You’ll see us investing in more sports…because that’s the DNA of this business,” he told reporters.
The company will recommend a dividend of 0.70 euros ($0.7374) per share, up from 3.30 euros per share in 2021, at an annual general meeting on May 11, he said.
Shares of Adidas recovered from early losses to trade down 1.6% at 1530 GMT. They outperformed their Puma rivals and Nike (NYSE:) since the beginning of this year, a sign that investors support Gulden.
“We think equities don’t price in how long it will take to rebuild the brand and margins,” Credit Suisse analyst Simon Irwin said in a note.
The company severed ties with Ye in October following a series of anti-Semitic comments he made on social media and in interviews that also prompted Twitter and Instagram to restrict his accounts on their platforms.
Gulden said Adidas is still deciding what to do with its inventory of unsold Yeezy shoes. Burning the shoes poses a sustainability issue, he said, while donating them to charity is complicated due to their resale value, which has jumped since the split.
A pair of Yeezy 350 “Zebra” shoes now sell for between $340 and $360, up from around $260 four months ago, according to John Mocadlo, CEO of American sneaker retailer Impossible Kicks.
One option could be for Adidas to donate proceeds from the sale of repurposed Yeezy stock to charity, Gulden said.
The split cost Adidas 600 million euros ($632 million) in sales in the fourth quarter of 2022, and Yeezy shoes reportedly brought in around $1.2 billion in revenue this year.
Gulden said ending Yeezy – a decision before he took office – was the right thing to do, but added it was “very sad” and it would take time for Adidas to build a new brand. so influential.
Filling the void left by Yeezy won’t be easy, Gulden said.
One area of growth he pointed to was a trend for “terrace” style sneakers like the Samba, Gazelle and Spezial. He said a pop-up store in Shanghai selling Samba shoes had drawn queues of shoppers earlier this week.
“For the first time in a long, long time, people are lining up to buy an Adi product that isn’t Yeezy.”
Overall, Gulden said Adidas needed to reduce inventory levels and make fewer discounts. Inventories stood at just under 6 billion euros at the end of December, up 49% compared to the previous year, including 400 million euros of Yeezy products.
The company expects 2023 underlying operating profit to be about break-even when taking into account the $500 million loss from the non-sale of existing Yeezy stock.
If Adidas decides not to reuse the products, it will completely write off inventory, cutting profits by another $500 million. That, plus $200 million in one-time costs, would put Adidas at a loss of $700 million this year.
RBC analysts said they see full write-down as the most likely scenario.
Wedbush analysts who track new sneaker product launches said Nike would likely take market share from Adidas in the absence of new Yeezy models.
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