adidas released its preliminary results for 2023, revealing flat currency-neutral revenues compared to the prior year, defying expectations of a low-single-digit decline. Despite challenges from the devaluation of the Argentine Peso in Q4, reported sales dipped 5% to €21,427 million in 2023, including a €1,000 million negative impact from unfavorable currency movements. This is anticipated to persist as a hindrance to the company’s top-line growth in 2024.
The sales performance in 2023 was influenced by reduced sell-in to the wholesale channel, part of successful initiatives to trim high inventory levels. The discontinuation of the Yeezy business also had a detrimental effect, causing a €500 million drag on the year-over-year comparison. However, two Yeezy drops positively contributed around €750 million in net sales in 2023, compared to over €1,200 million in Yeezy revenues in 2022. Excluding Yeezy revenues in both years, currency-neutral revenues saw a 2% increase in 2023.
Negative currency effects weighed on the gross margin throughout the year, but adidas managed a slight improvement, reaching 47.5% in 2023, up from 47.3% in 2022.
Despite the impact of the devaluation of the Argentine Peso, adidas achieved an operating profit of €268 million in 2023, exceeding expectations that projected a €100 million operating loss. This outperformance was driven by a stronger-than-expected operational business in Q4 and the decision not to write off the majority of its Yeezy inventory. The earlier outlook included a potential write-off of around €300 million, but the latest decision results in a low double-digit million amount for Yeezy-related inventory write-offs. The company now plans to sell the remaining Yeezy products at least at cost in 2024.
The underlying operating profit for 2023 reached around €200 million, surpassing the guidance of approximately €100 million. This figure excludes the Yeezy profits generated in 2023 (around €300 million) and adjusts for one-off costs related to the strategic review conducted in 2023 (around €200 million) as well as Yeezy-related write-offs (low-double-digit million euro amount).
adidas has also issued its financial guidance for the current year.
In 2024, the company expects currency-neutral sales to grow at a mid-single-digit rate. This top-line guidance assumes that adidas will sell the remaining Yeezy inventory at cost, which would result in sales of around € 250 million in 2024. Excluding the Yeezy revenues in both years, the top-line guidance reflects currency-neutral growth at a high-single-digit rate in the underlying adidas business.
As the sale of the remaining Yeezy inventory is currently assumed to occur at cost, the planned sale of the product is currently expected to have no effect on the company’s operating profit this year. Unfavorable currency effects are projected to weigh significantly on the company’s profitability in 2024 as they are expected to continue to impact both reported revenues and the gross margin development in 2024.
Taking all of this into account – the expected translational and transactional FX headwind as well as the current Yeezy assumptions – adidas expects to generate an operating profit of around € 500 million in 2024.
adidas CEO Bjørn Gulden: “Our fourth quarter developed a little better than expected and we have decided to release preliminary numbers. For the full year our currency-neutral revenues were flat, and we reached an operating profit of € 268 million. This is € 368 million better than what we guided for. The improvement is due to the better operating business of around € 100 million and the decision to not write off € 268 million of Yeezy inventory. Our consumer, retail and trade research has shown that we can sell this remaining inventory in 2024 for at least the cost price. This is why we have only written off inventory that was either damaged or very broken in sizes.
"We continue to feel we have improved our presence in front of the consumer, we have better products in the market with improved sell-throughs, we have increased our visibility by investing again in more teams and athletes, we have successfully launched our new Originals campaign, we feel we have improved our relationship with our retail partners and we have reduced our inventories substantially.
"We do of course know that our financial performance is not good. But we are on the way of making adidas a good company again. As we said from the beginning, we just need the time to solidly build it up again. I feel that the attitude and agility in our teams are back and that we are showing the old adidas DNA again", he added.
Gulden noted that "For 2024, we expect sales to start flattish, but to then improve every quarter. We expect the underlying adidas business (excluding Yeezy) to grow in the high-single-digits for the full year and to be up at least 10% in H2.
"Despite no assumed profit contribution from Yeezy, the strong unfavorable currency effects, the ongoing challenges in North America, our continued investment in both marketing and sales and a world full of uncertainties, we expect an operating profit of around € 500 million in 2024.
This year is the next building block needed to bring adidas back to be a company with double-digit growth and 10% operating margin”, the adidas boss concluded.
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