Does the breakup with Kanye West cripple Adidas?
Adidas posted its first annual loss in more than 30 years and warned that sales in North America will decline further. That Kanye West character also has something to do with it… Facts, numbers and predictions
2023 has been a tough year for Adidas. The German sportswear giant in fact closed last year with a net loss of 75 million euros compared to the profit of 612 million in 2022. The crisis is due (also) to the breakdown of relations with the controversial designer, rapper and American entrepreneur Kanye West, who had entered into a very profitable collaboration with the company.
THE END OF THE PARTNERSHIP BETWEEN ADIDAS AND KANYE WEST
The collaboration between Kanye West and Adidas was born in 2015 when the rapper presented the Yeezy collection, which became famous for its high-end limited edition productions. In addition to the sneakers, the partnership also resulted in a series of other sportswear items.
However, the rapper's unfortunate anti-Semitic outbursts (in the wake of fresh revelations about Donald Trump, of whom he is an admirer ), in October 2022, marked the end of the understanding .
THE PROFITS GENERATED BY YEEZY (EVEN AFTER THE BREAKUP)
In 2021 alone, Yeezy had earned Adidas over £1.2 billion, equivalent to around 7% of its overall annual revenue, but after severing ties with the rapper, the brand found itself with a quantity of products unsold with a total value of approximately 1 billion dollars .
In the first quarter of 2023, the termination of the partnership caused Adidas to lose £350 million compared to the same period the previous year. However, from the sale of Yeezy the company still obtained 750 million euros in revenue last year, with a profit of 300 million euros, of which 140 million was set aside for donations to charities fighting anti-Semitism and racism.
SALES PROBLEMS
But the consequences continue to be felt. Losses due to the stop of the Yeezy line and high inventories of unsold products caused Adidas to close 2023 with a net loss of 75 million euros, compared to the profit of 612 million in 2022.
Total revenues fell by 5% to 21.4 billion euros in the year with a decline of 2% in the fourth quarter, mainly due to the decline in sales in North America, which fell by 21% in the fourth quarter of 2023 and on an annual basis of 16%. As Reuters notes , this is its first annual loss in more than 30 years.
PREDICTIONS FOR THE FUTURE
Adidas predicted that sales in North America will continue to decline about 5% this year. However, it expects an improvement with double-digit growth in the second half of 2024. The company, writes the news agency, “is betting on the possibility of recovering market share from rivals, even if the general appetite of consumers for sportswear it decreases”.
Nike, for example, said in February that it would cut 2% of its total workforce, or more than 1,600 jobs, to reduce costs amid weakening demand. Adidas stock, however, notes Bloomberg , has gained around 28% in the last year, outperforming rivals Puma and Nike.
Adidas is also hoping to catch up in China, where it expects a stronger recovery, with double-digit sales growth following an 8% increase in 2023.
WHAT ANALYSTS AND INVESTORS THINK
The German company, while maintaining optimism, does not go too far and announces that it expects to record an operating profit of 500 million euros in 2024, lower than the average of 856 million euros of analysts' estimates, thus disappointing investors who expected an improvement in prospects.
For Jefferies analysts "it is surprising that Adidas has not increased its forecasts for 2024, given that a first release of the Yeezy line in March does not appear to be cost-effective". The company has in fact reported that it intends to sell the remaining inventories "at least at cost price", with a turnover of around 250 million euros , "but demand for the shoes is difficult to predict", writes Reuters .
And even for Cristina Fernandez, analyst at Telsey Advisory Group, although the company has so far successfully managed Yeezy sales, these are "still a bit of a wild card".
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/la-rottura-con-kanye-west-azzoppa-adidas/ on Wed, 13 Mar 2024 14:04:38 +0000.