The second largest sporting goods company in the world is in a deep crisis. Now the hopes rest on the new CEO Björn Gulden.
(Photo: imago images/Eibner)
Munich After a slump in profits last year, the Adidas 2023 crisis is getting worse. “We are currently not performing as well as we should be,” said the new CEO Björn Gulden on Thursday. Also because of the separation from the scandalous rapper Kanye West, there is a risk of a decline in sales and possibly an operating loss this year.
According to preliminary figures, last year sales increased by one percent to 22.5 billion euros, Adidas announced. The operating result collapsed from almost two billion euros to 669 million euros. Income from continuing operations fell from 1.5 billion euros to 254 million euros. This fell far short of the original expectations, which were lowered several times during the year.
After the warning of possible losses, the price of the Adidas share fell by eight percent to 141 euros. During the crisis, the shares of the DAX group fell to around 94 euros last year. Since Gulden’s appointment things had improved again.
The second largest sporting goods group in the world is suffering, among other things, from a slump in sales in China and the separation from West, whose Yeezy collection was sold by Adidas. After several profit warnings, CEO Kasper Rorsted had to step down last year. Hopes now rest on Gulden, who switched from smaller rivals Puma to Adidas.
An operating loss of 700 million euros is possible
Adidas still has a larger inventory of Yeezy products but no longer sells them. Although various options are being examined, the lack of a sale could reduce sales this year by around 1.2 billion euros and the operating result by 500 million euros. Against this background, a currency-adjusted decline in sales in the high single-digit percentage range is expected this year. The operating result could be “roughly at break-even level”.
However, if the inventory of Yeezy products is not used, this could reduce the operating result by a further 500 million euros. Since further one-off costs of 200 million euros are expected in the course of examining the strategic positioning, it is possible that an operating loss of 700 million euros will occur if all effects occur. “2023 will be a year of transition to create the basis for becoming a growing and profitable company again,” said Gulden.
Many of Adidas’ problems are of their own making. Experts complain about an innovation deficit. “The share of new products in sales has gradually fallen in recent years,” said Ingo Speich, who is in charge of corporate governance and sustainability at Deka. The separation from West hit the group all the harder. In good years, Adidas had made well over a billion euros in sales with Yeezy products.
Rorsted has acknowledged mistakes in China
Adidas had – later than other companies – ended the long, very profitable cooperation with West, who now simply calls himself “Ye”, after anti-Semitic statements by the US rapper. West’s statements and actions are “unacceptable, hateful and dangerous,” the company said. In the fall, allegations were made that Adidas managers had noticed West’s misconduct but had not intervened. Important investors demanded clarification.
More problems arise. The group was affected by the boycott of Western brands in China and at times had the wrong products for the Chinese market. “Of course we made mistakes in China,” Rorsted told Handelsblatt – and shortly afterwards had to announce his early departure.
Now all hopes rest on Gulden. Under his leadership, Puma had grown faster than its larger neighbor in Herzogenaurach. The Norwegian now asked for patience. “We will be fully focused on the consumer, our athletes, our retail partners and our employees,” he said in a statement. Together they will work to “strengthen the brand, improve our product development and distribution and ensure that Adidas is a great place to work, where work is fun”.
According to Gulden, the group has everything it takes to be successful: the necessary strong brand, good employees and partners, and an infrastructure that is second to none. “We need to put the pieces back together, but I’m confident we can make adidas shine again.”
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