The results were not unexpected. Adidas had already released preliminary figures for sales in 2022 and reported growth of 1 percent, in currency neutral terms, to bring in 22.51 billion euros ($23.75 billion) last year.
The official figures, released by the German sportswear giant on Wednesday morning in Europe, showed how heavily the last three months of 2022 weighed on that figure.
Over the first nine months of the year, Adidas sales had actually been going up. But in Q4 last year, Adidas revenues fell 1 percent, in currency neutral terms, to 5.2 billion euros ($5.5 billion).
“This development reflects the negative impact of around 600 million euro [$633 million] related to the company’s decision to terminate the Yeezy partnership at the end of October,” Adidas said in a statement, referring to the company’s split with long-time collaborator, musician Kanye West, otherwise known as Ye, after his increasingly erratic behavior.
Ongoing sales declines in the Greater China region – around 50 percent in the fourth quarter – because of COVID-19 lockdowns, geo-political tensions and what Adidas called ” company-specific challenges,” also made a significant dent in Q4 revenues. Adidas made 520 million euros ($549 million) in sales there in the last three months of 2022, compared to 1 billion euros ($1.06 billion) over the same period the previous year.
This resulted in a total of 3.18 billion euros ($3.36 billion) in revenue from Greater China over the whole of 2022, a decrease of 36 percent altogether, currency adjusted. Adidas had previously focused on the Chinese market as a major potential source of new customers.
Elsewhere in the Asia Pacific region, Adidas’ revenues actually grew 4 percent, currency adjusted, in 2022, to 2.24 billion euros ($2.36 billion).
In a statement, the German sportswear giant’s new boss, Bjørn Gulden, looked to the future – the former Puma chief only took on the job in December and has a difficult job ahead of him. Gulden said that “2023 will be a transition year to build the base for 2024 and 2025. Adidas has all the ingredients to be successful. But we need to put our focus back on our core: product, consumers, retail partners and athletes.”
In other markets, the brand performed far better. The fourth quarter saw revenues grow in Adidas’ home market of Europe by 12 percent and in the North American market by 6 percent, in currency adjusted terms. This resulted in increases of 9 percent in Europe and 12 percent in North America for the whole year, and revenues of 8.55 billion euros ($9.02 billion) and 6.4 billion euros ($6.76 billion) in those markets respectively.
Sales in Latin America powered ahead 44 percent, currency adjusted over the year, to 2.11 billion euros ($2.23 billion) over the whole year.
In terms of product categories, footwear continued to be Adidas’ biggest seller, with sales rising 3 percent, currency adjusted, over 2022, to hit 12.29 billion euros ($12.97 billion). Although a much smaller category, accessories sales also rose, up 19 percent, currency adjusted, to 1.5 billion euros ($1.58 billion).
Apparel seemed to be a more difficult sector for the second-biggest sportswear company in the world. In this category, sales were static in 2022, with revenues of 8.73 billion euros ($9.21 billion) in 2022. The previous year, apparel had brought in 8.71 billion euros ($9.19 billion) in revenues.
The results for the fourth quarter were slightly above what market analysts had expected but in line with the general consensus. More significant for the market was the fact that, given the difficult circumstances, Adidas planned to slash its dividend. Last year, the brand paid out 3.30 euros ($3.48) a share and this year it said it would likely only pay 0.70 euro ($0.74).
Adidas had already set out its grim forecast for 2023 in February and reiterated those expectations on Wednesday morning, predicting revenues would decline in the high-single digits during the year.
“Elevated recession risks in Europe and North America as well as uncertainty around the recovery in Greater China continue to exist,” the company said. High inventory levels are a problem, as is what to do with remaining Yeezy-related products. The guidance for 2023 reflects a potential loss of 1.2 billion euros ($1.27 billion), should the Yeezy stock not be able to be sold, Adidas noted.
“I was not here when this thing exploded,” Gulden said, “but when it happened, a lot of product was still in the production pipeline. I think Adidas made the right decision to continue to produce [because] if not, 10,000 people in factories would have lost their jobs. So all the orders that were placed in Asia were fulfilled.” These are just now being delivered to warehouses around the world, he noted.
Addressing recent online speculation, Gulden stated that no decisions had been made about what would happen to the remaining Yeezy product and that Adidas had not been in negotiations with anybody on the topic.
There have been “gazillions” of suggestions as to what to do with the leftover Yeezy products, Gulden said. That includes everything from destroying them, donating them to earthquake victims in Syria and Turkey, recycling them, turning them into artificial soccer pitches and, of course, selling them.
If the shoes were sold, then they would be sold as is. Re-labeling them wouldn’t be honest, Gulden said. And even though Adidas has cut ties with Ye, if the shoes were sold, then Ye would eventually receive royalty payments from them, as per his original contact.
But there are problems with almost all the options, Gulden explained, not least because the Yeezy shoes are scattered around the world right now. Adidas is trying to work out what would be the least harmful thing to do, he said.
“We will probably not make profit on this product, if I’m really honest with you,” he told journalists. “But there’s a lot of cost involved with this, depending on what we choose.”
If there was excess cash involved in getting rid of the Yeezy products, then those who had been harmed by the scandal would also receive some of it, Gulden added.
The other major problem for Adidas is an ongoing sales declines in Greater China — around 50 percent in the fourth quarter — because of COVID-19 lockdowns, geopolitical tensions and what Adidas called “company-specific challenges.” Adidas made 520 million euros in sales there in the last three months of 2022, compared to 1 billion euros over the same period the previous year.
This resulted in a total of 3.18 billion euros in revenue from Greater China over the whole of 2022, a decrease of 36 percent altogether, currency adjusted.
Gulden signaled that to tackle this, he planned similar tactics for the Chinese market as he had implemented at Puma. That includes giving Chinese management teams more autonomy in their own territory, making more products for Chinese consumers inside China, and instituting shorter lead times for production.
Elsewhere in Asia Pacific, Adidas’ revenues grew 4 percent, currency adjusted, to 2.24 billion euros last year.
The fourth quarter saw revenues grow in Adidas’ home market of Europe by 12 percent and in the North American market by 6 percent, in currency adjusted terms. This resulted in increases of 9 percent in Europe and 12 percent in North America for the whole year, and revenues of 8.55 billion euros and 6.4 billion euros in those markets respectively.
Sales in Latin America powered ahead 44 percent, currency adjusted over the year, to 2.11 billion euros over the whole year and Gulden also saw potential in India as an emerging market.
Footwear continued to be Adidas’ biggest seller, with sales rising 3 percent, currency adjusted, over 2022, to hit 12.29 billion euros. Although a much smaller category, accessories sales grew 19 percent, currency adjusted, to 1.5 billion euros.
Apparel sales were flat in 2022, with revenues of 8.73 billion euros.
For Gulden, one of the most important factors in the company’s recovery was how well Adidas’ performance products — that is, more technical shoes and clothing made for sportspeople — had done. Revenues in the performance category grew 19 percent in 2022, while lifestyle products fell 5 percent, the company reported.
“If we had negative numbers here [in the performance category] and positive numbers in the fashion sector, it would have been much more difficult to be optimistic,” Gulden admitted.
Speaking about the U.S. basketball market, the new CEO gave a clue as to why. A sportswear brand gains credibility with more expensive to develop technical products on the court, he explained, but makes its money selling more ordinary shoes and classics. “That’s the recipe,” he said.
As for Adidas’ lifestyle and fashion products, the Adidas boss clearly saw some room for improvement. Replacing the Yeezy collaboration was going to be very difficult, he conceded, but thought there was potential in Adidas classics like the Samba, Gazelle and Spezial shoes.
Gulden also confessed that while at Puma, he’d been “very jealous” of the kinds of relationships Adidas had with high-fashion partners like Balenciaga, Moncler, Gucci and Prada.
“I don’t think I would have said no to any of those brands,” he added, but then noted there had been problems in executing the collaborations. “Because of COVID-19, a lot of these things were delayed and then they came, probably too quick, in sequence. I don’t think that was the plan. We would work with those brands in the future — but not four in 18 months.”
Gulden is widely credited as having taken Puma, a smaller competitor, to record-breaking heights. He headed that sportswear company for nine years and left last December, just as Puma proclaimed 2022 its best year for revenues. While not overtly critical, Gulden did let a few criticisms slip during the press conference.
“On the question of mistakes, it’s hard for me to judge,” Gulden told attendees. “That strategy [at Puma] was to be flexible because the world was very unstable. I think Adidas chose a strategy in the middle of COVID-19 and tried to execute it, and that was difficult. You cannot have a two-year strategy if the world is changing. The changes in the world hit Adidas much harder than Puma.”
On the other hand, Gulden believes that a lot of the groundwork for Adidas’ future success have now been laid. “So when we get out of this uncertainty and instability, then a lot of the things that were in the strategy will be an advantage,” he suggested.
For now, the sportswear brand must continue to deal with its current, less happy circumstances. Adidas had already set out its grim forecast for 2023 in February and reiterated those expectations on Wednesday morning, predicting revenues would decline in the high-single digits during the year and that the company would only just break even during 2023. If the Yeezy stock is not sold, it would likely be dealing with a loss.