Adidas Share price jumps, Bjørn Gulden exceeds expectations with poor figures
How sensible Bjørn Gulden’s profit warning was shortly after he took office is shown at the latest with the presentation of the balance sheet for the first quarter: Adidas slips into the red – the share nevertheless jumps to the top of the 德国DAX指数.
Full warehouses and the termination of the Yeezy partnership have also burdened the sporting goods manufacturer Adidas at the start of the year. In the continuing business stood in the first quarter a loss of 24 million euros, as Adidas announced on Friday in Herzogenaurach. A year ago, the world number two had still achieved a profit of 310 million euros here. The new CEO Bjørn Gulden (57) nevertheless confirmed his annual forecast.
At just under 5.3 billion euros, sales were on a par with the previous year after adjusting for foreign exchange effects. Operating profit slumped by over 86 percent to 60 million euros. The corresponding operating margin was only 1.1 percent, having reached 8.2 percent a year earlier.
Adidas shares rose around 7 percent, climbing to a high for the year and taking the top spot on Germany’s leading Dax index. Analysts had expected worse results. Industry expert James Grzinic of investment house Jefferies praised the sales performance in particular. This could lead to Adidas exceeding the forecast issued by management for the full year.
Inventories fall, China performs better than expected
According to Group CEO Gulden, the first quarter thus ended somewhat better than expected. He said inventories were still too high, but already 300 million euros lower than at the beginning of the year. As of the end of March, Adidas’ inventories amounted to almost 5.7 billion euros.
In Europe and especially the U.S., retailers are sitting on high inventories. Last year, as a result of the supply chain problems, they had ordered a considerable amount of additional products to meet the then still high demand. The items are now sitting in warehouses, while consumers are holding back on purchases in the face of high inflation.
For 2023, CEO Gulden expects sales to decline by up to 9 percent in constant currency. The Group CEO continues to see an increased risk of recession in North America and Europe, as well as uncertainties with regard to the recovery in China.
Adidas had lost massive ground there under his predecessor Kasper Rorsted (61), with market share plummeting from 19 percent in 2019 到 11 percent. Adidas was also hit harder than its competitors by calls for boycotts following Western criticism of its treatment of the Uyghurs, because Germans there relied more on celebrities as brand ambassadors than athletes, according to CMBI analyst Walter Woo. Gulden is now changing course: with products more tailored to China and with athletes as advertising vehicles. That has already paid off in the first quarter, with sales performing better than expected, according to Friday’s note. “This makes us optimistic for the rest of the year,” Gulden said.
Future of Yeezy products still unclear
The forecast includes a loss of sales of 1.2 billion euros in the event that Adidas can no longer sell its remaining Yeezy products. The items had been created in a partnership with controversial U.S. rapper Kanye West, 45. Adidas had earned splendidly from it in the past. Last year, however, the company had ended the cooperation, among other things, because of anti-Semitism allegations against the rapper.
In the first quarter, Adidas therefore lost 400 million euros in sales. It remains unclear what will happen to the products. Options range from various sales options, which could include donating the proceeds, to destroying the merchandise. The dilemma: If one sells the “Yeezy” 库存, which is coveted by fans, West would be entitled to high commissions – and Adidas’ image would suffer. If the millions of pairs of shoes are thrown away, high losses are imminent.
Gulden had taken over as CEO on January 1. In February, he had already warned the markets of bad times ahead – after all, he had taken over a company full of construction sites from his predecessor Rorsted. Gulden therefore sees the current year as a year of transition. “2023 will be a bumpy year with disappointing numbers, where our goal is not to maximize our short-term financial results,” Gulden said. With that, he set the bar low. And the first-quarter figures already show how sensible this strategy was. Despite poor figures, the Adidas CEO was able to exceed investors’ expectations.
