The separation of US scandal rapper Kanye West and the joint brand “Yeezy” costs the sporting goods company a lot of sales and profits.
(Photo: Reuters)
Munich The troubled Adidas group is not gaining momentum even under new leadership. In the first quarter, sales stagnated at 5.3 billion euros, as Adidas reported on Friday. As a result, the world number two once again underperformed its most important competitors. The bottom line was a small loss.
At the very least, Adidas beat analysts’ low expectations. The new CEO Björn Gulden also sees progress. If you exclude the sales of the “Yeezy” brand from the stopped cooperation with the US scandal rapper Kanye West, the revenues have increased by nine percent.
The quarter was therefore “better than expected”, says the Norwegian. “Adidas has everything it takes to be the best sporting goods brand in the world, to grow strongly and to be a good, profitable company.”
At the turn of the year, Gulden took over the management of the world’s second largest sporting goods group. Previously, he had led the competitor Puma, which had been more successful in recent years. Predecessor Kasper Rorsted had to leave early last fall due to the crisis.
Union Investment and Deka want to vote against the discharge of the board of directors and supervisory board in the coming week. “The catastrophic operational development and the much too late intervention not only destroyed trust on the capital market, but also destroyed shareholder capital,” said Ingo Speich, Head of Sustainability and Corporate Governance at Deka Investment.
One looks back on a “disastrous tenure” of Rorsted. “The investors are faced with a pile of rubble that cannot be cleaned up so quickly.” Gulden’s obligation is welcomed. “He now has to quickly bring Adidas back to profitable growth, polish the three stripes again and put the brand in the right light with customers.”
Puma and Nike recently grew in double-digit percentage terms
Gulden has already started with the conversion. “I spent Q1 working on our product range,” said the Norwegian. He also helped brainstorm future innovations and spoke to a great many retailers about improving collaboration. He also discussed strategy with suppliers and many athletes and athletes, and processes would be simplified.
However, it will still take a while before the measures are reflected more clearly in the figures. The competition has also developed better in recent months. Gulden’s former company Puma increased sales in the first quarter by 14 percent to 2.2 billion euros. World market leader Nike grew in its third fiscal quarter 2022/23 – in the period from December to February – by 19 percent to 12.4 billion dollars.
Adidas’ profitability also remains weak. The operating result collapsed from 437 to 60 million euros. The bottom line was a loss of 30 million euros after a profit of 490 million euros in the same period last year.
In China, the decline in sales is slowing down
The Adidas crisis has a number of causes. In China, the group suffered from a boycott of Western brands and offered too few products specially adapted to the Chinese market. In the past quarter, China revenues fell again by nine percent. Puma was able to grow again in China for the first time.
With the “Yeezy” brand, Adidas, in cooperation with Kanye West, had achieved sales of well over one billion euros in good times. These proceeds are now missing. Even when the quarterly figures were presented, Gulden was not yet able to present a solution for the “Yeezy” products that Adidas still has in stock. Investors also complained about an innovation deficit at Adidas.
There are also problems in North America. “The most difficult challenge is the business situation in the USA,” says an Adidas manager. The discount pressure is great here, and Puma also had to record a significant drop in sales in the first quarter. At Adidas, the missing “Yeezy” sales are added. The brand was particularly popular in the USA. Overall, adidas sales in China fell 20 percent in the first quarter.
Gulden is correspondingly cautious for the year as a whole. For 2023, he continues to expect a drop in sales in the high single-digit percentage range, also due to the high inventories, and a loss of up to 700 million euros in operating profit is possible. “2023 will be a bumpy year with disappointing numbers where our goal is not to maximize our short-term financial results,” said Gulden.
Investors believe in a turnaround under the Norwegian’s leadership, but warn of new mistakes. “The company can no longer afford negative headlines,” said Thomas Jökel from Union Investment.
More: Puma has double-digit percentage growth after change of boss.