Herzogenaurach After a loss in the fourth quarter, the troubled Adidas group is preparing for a difficult transition year in 2023. “We have to reduce inventories and reduce discounts,” said the new CEO Björn Gulden in Herzogenaurach on Wednesday.
In the current year, an operating loss of 700 million euros is possible, mainly due to the separation from US scandal rapper Kanye West. In 2024 one could then “start building a profitable business again”. However, Adidas has all the prerequisites to be successful again.
The Board of Directors will continue to be restructured. The long-standing sales director Roland Auschel is leaving Adidas after 33 years in the group. “Roland has celebrated many successes over the past three decades and made an increasingly important contribution to the development of Adidas,” said Thomas Rabe, Chairman of the Supervisory Board. His successor will be Arthur Hoeld, who last headed the Greater Europe region.
Brian Grevy (Global Brands) is also leaving. Gulden takes on his tasks himself. By managing the sales and marketing activities, he can “ensure the necessary quick decisions across all business units and departments”.
The Group’s operational situation is difficult. In the fourth quarter of 2022 alone, the second largest sporting goods company in the world posted an operating loss of 724 million euros. Sales fell slightly. The end of the partnership with West alone pushed the proceeds in the fourth quarter by 600 million euros. The dividend for 2022 will be cut from 3.30 euros to 70 cents.
The previous Puma boss Gulden took over the management of the Dax group at the turn of the year. As previously published, Adidas sales for the full year 2022 rose much weaker than originally expected by just one percent to 22.5 billion euros. Income from continuing operations fell from 1.5 billion euros to 254 million euros.
World market leader Nike is far ahead of number two
As the world number two, Adidas currently has a problem. The distance to Nike, which should actually be reduced, has increased significantly. In the first half of the 2022/23 financial year, the Americans increased sales by ten percent to $26 billion.
So instead of coming within sight of the world market leader, the number three is getting closer. Because competitor Puma was able to increase sales last year by almost 19 percent to 8.5 billion euros for the first time. The operating result rose by 15 percent to a record value of 641 million euros.
Now everyone is hoping for the new CEO to save them. “The expectations of Gulden are immense,” says Michael Lichtinger, Director at the management consultancy Atreus. The Norwegian has to deliver quickly at Adidas and “can’t afford to make any major mistakes, because too much just went wrong in Herzogenaurach recently”. Gulden had to “first stabilize the group in a complicated situation and win over the employees”.
The mood is better than the operational situation
At least the mood in the company has suddenly improved after the departure of the authoritarian leader Rorsted. Gulden has a huge presence in Herzogenaurach, says an Adidas manager. “You get the feeling that he’s on campus 24/7.” The new CEO listens carefully to internal meetings, also shows up spontaneously at design meetings and gives everyone the impression that he is serious about teamwork think.
According to employees, during one of his first internal appearances, the former Puma boss emphasized that Adidas was his “first love”. After all, he had started his management career there after his football career.
Also in supervisory board circles one sees the chance for a real new beginning. Gulden has shown at Puma that he can lead operationally and create a family feeling. However, it is clear to everyone that the trend reversal will not happen overnight and that some painful decisions will have to be made.
One of Adidas’ main problems is the end of the partnership with Kanye West, who was noticed with anti-Semitic statements, among other things. Adidas stopped the collaboration – albeit later than other companies. The group now has a larger inventory of Yeezy products. The lack of sales could reduce sales by around 1.2 billion euros this year.
Against this background, Gulden affirmed that a currency-adjusted drop in sales in the high single-digit percentage range is expected this year. The operating result could be “roughly at break-even level”.
In 2023 there is a risk of high losses due to depreciation on Yeezy products
However, if the inventory of Yeezy products is not used, depreciation on the inventory could reduce the operating result by another 500 million euros. Since further one-time costs of 200 million euros are expected in the course of examining the strategic positioning, an operating loss of 700 million euros is possible if all effects occur.
However, the separation from West could also be an opportunity for Gulden, believes Andreas Föller, founder of the personnel consultancy Comites. He was able to motivate the team by emphasizing that it wasn’t the employees but West’s antics that got them off track.
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