After the company provided its dismal financial outlook for 2023 last month, Adidas is set to release its full year fiscal 2022 results on Wednesday.
In its February release, the German sportswear company made it clear that it expects “significant adverse impact” from the loss of the Yeezy business to persist in 2023, after officially parting from the brand and its controversial founder Kanye West in October.
Adidas CEO Bjørn Gulden, who assumed the CEO role in January, said in a statement last month that 2023 “will be a year of transition to set the base to again be a growing and profitable company.”
The company will focus on improving products, brand heat, distribution and working life for employees, Gulden said. “The numbers speak for themselves,” Gulden added. “We are currently not performing the way we should.”
Here, FN breaks down the 4 things to know ahead of the company’s earnings report on Wednesday.
What the company is expected to report
Along with 2023 projections, Adidas also released its preliminary results for 2022 last month, which showed that sales were up 6% to 22.5 billion euros, or $24 billion at current exchange. Net income was expected to be 254 million euros, or $271 million, in 2022, down from 2021, in line with the company’s projections from November.
Wednesday’s numbers are expected to fall in line with these preliminary numbers, with hopefully more insight into how the company got to this point. Yeezy’s impact aside, Adidas previously downgraded its outlook in October, citing a traffic slowdown in Greater China, more promotional activity due to high inventory levels and other one-off costs. Adidas also rolled 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 at the time.
Guidance for 2023
Last month, Adidas said it expects revenues in 2023 to be lowered by around 1.2 billion euros, or $1.27 billion at current exchange, and operating profit by about 500 million euros, or $537 million.
This is obviously largely due to the sudden break up with controversial rapper Kanye West in October following several antisemitic and racist statements.
Adidas also said it expects up to 200 million euros ($215 million) in one-off costs this year, for a total loss of 700 million euros, or $751 million at current exchange, in 2023.
What’s next for Yeezy
One of the biggest issues investors are hoping Adidas will address in its earnings report on Wednesday is what it will do with its leftover $1.3 billion worth of Yeezy inventory.
Adidas warned in February that it could report an additional operating loss of up to 500 million euros in 2023 if it does not rebrand and sell existing Yeezy product, which it previously indicated could likely be the case. Adidas has confirmed that it is the sole owner of all design rights to existing products as well as previous and new colorways under the partnership, though Ye is likely the owner of the Yeezy name.
But new speculation emerged in recent weeks that there may be new plans for the unsold Yeezy inventory. According to multiple reports, rumors circulating on the Internet and social media are now noting that the German sportswear brand has carved out a new deal with West. The new contract will reportedly focus solely on selling the rapper’s existing merchandise and will not include any new designs or apparel from his clothing line. FN reached out to Adidas for confirmation but did not hear back.
Competitors are taking advantage of the moment
In a note on Friday, Wedbush Securities analyst Tom Nikic reiterated his previous sentiment that Nike should “benefit greatly” from the lack of Yeezys in the market. “Last year, Adidas released 11 different Yeezy styles in March (one of the most Yeezy-heavy months of the year), and since they’ve terminated their partnership with Kanye West, there will be no Yeezys this year,” Nikic wrote. “That opens up a major market share opportunity for Nike this March, as we believe people who bought Yeezys last March are likely to switch over to Nike styles such as Jordan, Dunk, and Air Max.”
Hoka, the fast-growing running shoe brand, is another sneaker player coming for Adidas’s market share. Last month, the brand reported that its net sales jumped 90.8% in the third quarter to $352.1 million, another quarterly record for the brand. Just two quarters ago, Hoka achieved $1 billion of revenue on a trailing 12-month basis. And with the quarter just delivered, the brand has now eclipsed $1 billion of revenue over the last nine months.