Adidas Slashes Full Year Outlook, Rolls Out ‘Business Improvement Program’

Adidas has once again cut its outlook for 2022.

The lowered outlook accounts for a drop in Greater China traffic, an inventory build-up from softer demand in Western markets, more promotional activity and a series of one-off costs that will impact the company in the back half of the year.

Given these headwinds, Adidas now expects total currency-neutral revenues for the total company to grow at a mid- to single-digit rate in 2022, compared to a previous projection of a mid- to high-single-digit rate in 2022. This would reflect double- digit revenue growth in Q4. Net income from continuing operations in 2022 is expected to be around 500 million euros, updated from the previously estimated 1.3 billion euros.

Adidas shares were down almost 4% on Thursday following the announcement.

In an effort to preserve profitability in 2023, Adidas is rolling out a “business improvement program” which will include “several initiatives aimed at mitigating the significant cost increases resulting from the inflationary pressure across the company’s value chain as well as unfavorable currency movements,” Adidas said.

The program is expected to incur a one-time cost of 50 million euro in Q4 of 2022 and make up for 500 million euro worth of headwinds in 2023. Adidas expects the program to account for 200 million euro in profit in 2023.

Adidas also reported preliminary results for the third quarter. Currency-neutral revenues grew 4% and currency-neutral sales in Greater China dropped at a strong double-digit rate. Net income from continuing operations was 179 million euro in Q3, partly due to expenses related to winding down its business in Russia.

Adidas previously downgraded its full year outlook in July ahead of its Q2 earnings report, citing slower-than-expected recovery in China, due to persisting Covid-19 restrictions. Adidas reported that currency-adjusted sales in Q2 were up by 4%, though net income from continuing operations declined to € 360 million (or $367 million). Operating profit fell to € 392 million ($398 million) from € 543 million ($553 million) in 2021.

Outside of China, Adidas saw headwinds from supply chain issues as a result of last year’ lockdowns in Vietnam, which impacted top-line growth by about € 200 million ($203 million) in Q2. The company’s decision to suspend all retail and e-commerce sales in Russia represented a more than € 100 million ($102 million) hit in Q2.

Adidas CEO Kasper Rorsted in a Q2 statement noted a “potential slowdown in consumer spending” across other markets, which could create persist through 2022.

The future of Adidas’ partnership with Kanye West’s Yeezy brand is also in flux. The company put the partnership under review earlier this month amid a week of drama surrounding Kanye West. While Adidas does not break out Yeezy sales numbers, Morningstar analyst David Swartz estimates the brand brings in close to $2 billion a year. Swartz projects overall Adidas revenues to hit $23 billion this year, which would make Yeezy sales represent nearly 10% of the total.

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