Adidas Looks To Make Transition As Yeezy Bite Losses
Adidas announced plans to cut its dividend and declared 2023 a “transition year” on Wednesday, as the company struggles to reposition itself after ending its lucrative partnership with Kanye West and the Yeezy brand last year.
At the same time, the company said it was still deciding what to do with around 1.2 billion euros (nearly $1.3 billion) worth of Yeezy sneakers and other sportswear, including potential sale and donation of profits “to do something good”.
The dividend would fall to €0.70 per share from the current €3.30, a move to save money as the German sportswear giant regroups under a new chief executive who has said he wants a return to traditional product lines.
“We need to reduce inventory and reduce discounts,” said Bjorn Gulden, who became chief executive in January after leading Puma. “Adidas has all the ingredients to succeed. But we need to focus again on our core business: the product, the consumers, the business partners and the athletes. »
Even as the company seeks to expand its soccer, running, outdoor and golf lines, Gulden said he remains hopeful that collaborations with social media influencers and pop culture stars , including Beyoncé and Pharrell Williams, would resume in the coming year. They are part of the company’s lifestyle sector, which in recent years has been key to increasing Adidas’ popularity with a wider audience, particularly in the United States.
But after one of his best collaborators, the musician Kanye Westnow known as Ye — made a series of anti-Semitic remarks, Adidas was forced to break its business alliance with him in October.
The move left the company with a pile of trainers and apparel from the terminated deal, resulting in potential losses of €1.2 billion in sales and around €500 million in profits this year. Mr Gulden said Adidas decided to continue production of the Yeezy products that were in the works when the contract broke, to prevent thousands of those involved from losing their jobs, leaving stocks piled up in warehouses. worldwide.
“If we sell it, I promise people who have been hurt will get something good out of it as well,” Mr Gulden said. He didn’t specify who he was talking about, but added that donating the product would make more sense than just donating the shoes, which to be of excessive value on the resale market to collectors and other enthusiasts. Before last year’s uproar, Yeezy sneakers often sold for hundreds of dollars a pair.
The company previously said it was the “sole owner of all design rights to existing products” under the partnership, but Mr Gulden said on Wednesday it would not consider renaming the inventory Yeezy. If sold, instead of being destroyed, Ye would still be entitled to a portion of the proceeds, as stipulated in his royalty agreement, although Adidas would not make a profit, he said.
“Losing the Yeezy business is so difficult,” Gulden told reporters on Wednesday, praising the collaboration’s creativity on many levels, from design to marketing to its use of social media and apps.
“There is no other Yeezy company out there,” he said. “People who think you can just replace that with something else – you can’t.”
Adidas posted a 6% rise in net sales in 2022 to 22.5 billion euros, but its operating profit fell 66% to 669 million euros. Its decision to withdraw from Russia after invading Ukraine last year resulted in one-off costs of 59 million euros. In China, the company’s biggest market, extended “zero Covid” shutdowns last year led to a 36% drop in revenue from a year earlier and helped to increase unsold inventory.
The losses forced the company to issue four profit warnings over six months, which led Moody’s and S&P to downgrade its debt last month.
For 2023, Adidas expects underlying operating profit to be around the break-even level taking into account lost sales, if it can’t find a way to sell existing Yeezy stock.
Adidas faces many other challenges beyond its breakup with Ye. The company has lost market share to Nike and other rivals, including Puma, which Mr Gulden managed until his move to Adidas earlier this year.
Adidas said it plans to cut its dividend as part of cost-cutting measures, pending shareholder approval at their annual meeting in May.