Adidas posted third-quarter figures in line with preliminary estimates released in October and added that its inventory-reduction plan had gone a little better than expected in the latest three-month period, also noting that retailers were “visibly” interested in its autumn/winter 2024 range, especially around its Samba, Gazelle and Spezial ranges.
The company’s own inventory levels were down 23 percent year-on-year at €4.85 billion, a little more than expected, as its conservative sell-in strategy to wholesalers started to pay off.
However, Chief Executive Bjørn Gulden said inventory was falling at a slower pace among its retail partners, adding that levels in the US market “will continue to impact our business for a while.” He continues, “We do, of course, know that our current performance is not good enough, but we have said from the beginning that we need time to build this brand and company back to where it belongs. Our focus in our direct-to-consumer business is clearly to give fewer discounts, increase the full-price share and balance brand building with commercial success. We have also started to see good progress in this area.”
| Adidas - Income | |||
|---|---|---|---|
| 2023 | 2022 | Change | |
| Q3 (€ million) | |||
| Net sales | 5,999 | 6,408 | -6.4% |
| Cost of sales | 3,044 | 3,262 | -6.7% |
| Gross profit | 2,955 | 3,146 | -6.1% |
| Royalty and commission income | 20 | 36 | -44.4% |
| Other operating income | 5 | 58 | -91.4% |
| Other operating expenses | 2,570 | 2,676 | -4.0% |
| Operating profit | 409 | 564 | -27.5% |
| Financial income | 31 | 8 | 287.5% |
| Financial expenses | 115 | 162 | -29.0% |
| Pre-tax | 326 | 411 | -20.7% |
| Tax | 55 | 345 | -84.1% |
| Net from continuing operations | 270 | 66 | 309.1% |
| Gain from discontinued operations, net of tax | 10 | 286 | -96.5% |
| Net income | 280 | 352 | -20.5% |
| Diluted EPS from continuing operations | 1.40 | 0.34 | 311.8% |
| Diluted EPS from continuing and discontinued operations | 1.45 | 1.91 | -24.1% |
| Nine months (€ million) | |||
| Net sales | 16,616 | 17,306 | -4.0% |
| Cost of sales | 8,579 | 8,697 | -1.4% |
| Gross profit | 8,036 | 8,609 | -6.7% |
| Royalty and commission income | 66 | 86 | -23.3% |
| Other operating income | 62 | 133 | -53.4% |
| Other operating expenses | 7,519 | 7,435 | 1.1% |
| Operating profit | 646 | 1,393 | -53.6% |
| Financial income | 61 | 32 | 90.6% |
| Financial expenses | 226 | 302 | -25.2% |
| Pre-tax | 480 | 1,122 | -57.2% |
| Tax | 138 | 386 | -64.2% |
| Net from continuing operations | 343 | 736 | -53.4% |
| Gain from discontinued operations, net of tax | 2 | 415 | -99.5% |
| Net income | 345 | 1,151 | -70.0% |
| Diluted EPS from continuing operations | 1.69 | 3.83 | -55.9% |
| Diluted EPS from continuing and discontinued operations | 1.70 | 6.08 | -72.0% |
| Source: Adidas Group | |||
Total revenue fell 6.4 percent to €6 billion, although on a constant currency basis, it was up 1 percent. Confirming third-quarter preliminary figures, net profit fell 25 percent year on year to €259 million.
Operating profit fell to €409 million from €564 million and included €110 million in extraordinary expenses. The operating margin was 6.8 percent, down from 8.8 percent in 2022.
As a result of initiatives to reduce high inventory levels, currency-neutral wholesale sales declined 2 percent despite double-digit growth in Greater China and Latin America. At the same time, direct-to-consumer (DTC) revenues grew 5 percent year-on-year.
The gross margin for the quarter was up 0.2 percentage points to 49.3 percent, thanks to reduced freight costs, less discounting, and a more favorable business mix, but it was still adversely impacted by currency headwinds. Discounting levels improved significantly compared to the first half and second quarter of the year.
Net income rose to €270 million from €66 million a year earlier.
Footwear and China with solid performance, Latin America impresses in Q3
Footwear revenues grew 6 percent during the quarter on a currency-neutral basis, reflecting double-digit growth in the Originals range as well as in the football and basketball categories. Apparel sales were down 6 percent as they continued to bear the brunt of overstocking. Revenues in the company’s outdoor and basketball categories grew at strong double-digit rates. Apparel sales in the football category were down due to last year’s strong sell-in before the FIFA World Cup.
Lifestyle sales rose on the back of “extraordinary” continuing strong demand for the Samba, Gazelle, Spezial and Campus franchises, which led to a return to growth in Adidas Originals. Performance categories continued to experience strong momentum for many new products, such as the latest iterations of the Predator, X and Copa football boots and the next generation of Terrex Free Hiker outdoor shoes.
| Adidas - Sales | |||
|---|---|---|---|
| 2023 | 2022 | Change | |
| Q3 (€ million) | |||
| EMEA | 2,396 | 2,463 | -2.7% |
| North America | 1,484 | 1,752 | -15.3% |
| Greater China | 870 | 937 | -7.2% |
| Asia-Pacific | 567 | 579 | -2.1% |
| Latin America | 621 | 632 | -1.7% |
| Other businesses | 39 | 46 | -15.2% |
| Nine months (€ million) | |||
| EMEA | 6,371 | 6,477 | -1.6% |
| North America | 4,060 | 4,862 | -16.5% |
| Greater China | 2,520 | 2,659 | -5.2% |
| Asia-Pacific | 1,684 | 1,635 | 3.0% |
| Latin America | 1,812 | 1,561 | 16.1% |
| Other businesses | 120 | 111 | 8.1% |
| Source: Adidas Group | |||
Currency-neutral sales in North America fell 9 percent during the quarter, reflecting the ongoing impact of high inventory and the company’s decision to cut sell-in to wholesalers. As a result, wholesale revenues were down by double digits in the region, whereas DTC sales increased versus the prior year’s level.
Revenues in Greater China grew 6 percent in Q3, driven by double-digit growth in wholesale, and were up 10 percent, excluding Yeezy, the company’s ill-fated partnership with rapper Kanye West that ended last year after he made a series of anti-Semitic comments with Adidas holding €1.2 billion in unsold Yeezy shoes.
Sales in EMEA increased 2 percent (+2 percent excluding Yeezy), reflecting high-single-digit growth across the company’s own distribution channels. Asia-Pacific sales rose 7 percent (+5 percent excluding Yeezy), with strong double-digit DTC growth reflecting “the strong sell-out trend Adidas is enjoying in the region.” Latin America continued to impress with a 13 percent increase (+12 percent excluding Yeezy), reflecting strong growth in both wholesale and DTC.
Adidas reiterated its recently updated guidance for 2023, which was raised thanks to Yeezy inventory reductions and a better-than-expected underlying business, although it cautioned that macroeconomic challenges and geopolitical tensions persist. “Elevated recession risks in North America and Europe, as well as uncertainty around the recovery in Greater China, continue to exist,” it added.
The company has now put a temporary stop to the sale of Yeezy products. Gulden said there will be no more sales campaigns this year, and whether there will be further ones in the coming year is unclear: “No decisions have been made yet.” This year, the sale of the remaining stock generated €750 million in revenue.
The company continues to expect currency-neutral revenues to decline at a low single-digit rate and underlying operating profit – excluding any one-offs related to Yeezy and the current strategic review - to come in at around €100 million.
Adidas also sees an operating loss of around €100 million this year, down from a prior estimate of €450 million, including the positive impact from the two Yeezy drops in the second and third quarters of around €300 million from previous guidance of €150 million. The potential write-off of the remaining Yeezy inventory is estimated at around €300 million, down from €400 million previously, while one-off costs related to the strategic review are expected of up to €200 million.
