HERZOGINEAURACH (Germany/London) (Reuters) – Adidas Inc (ADSGn.DE) said on Wednesday it would cut its planned dividend for 2022 after warning its split from the artist formerly known as Kanye West could push it into its first year. loss in three decades this year.
CEO Bjorn Gulden, who will speak to investors later in the day for the first time since taking control on Jan. 1, vowed to rebuild the bruised brand after dealing with the fallout from ending Adidas’ partnership with West, which is now passing through, which resulted in the shoe line. sporting Yeezy gainer.
Adidas hasn’t said how much the Yeezy brand has made since its first deal with Ye at the end of 2013, but analysts estimate it accounted for as much as 7% of total sales in its best year.
Golden said the company needs to refocus on its core business and faces a “transition” year before returning to profitability in 2024, returning to its sports-based roots.
“You will see us investing in more sports… because that is the DNA of this company,” he told reporters.
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The company said the company will recommend a dividend of 0.70 euros ($0.7374) per share, down from 3.30 euros per share, in 2021 at its annual general meeting on May 11.
Adidas shares were down 2.1 percent by 1230 GMT. Yet they have outperformed rivals Puma and Nike since the start of this year, a sign investors are backing Golden.
“We believe the shares fail to discount the time it will take to rebuild the brand and profit margins,” Credit Suisse analyst Simon Irwin said in a note.
The company cut ties with Ye in October after a series of anti-Semitic comments he made on social media and in interviews also prompted Twitter and Instagram to restrict his accounts on their platform.
Gulden said Adidas is still deciding what to do with its inventory of unsold Yeezy shoes. Burning the shoes is a sustainability issue, he said, while donating them to charity is complicated by their resale value, which has risen since the split.
A pair of Yeezy 350 “Zebra” shoes now retail for between $340 and $360, compared with about $260 four months ago, according to John Mucadlow, CEO of American sneaker retailer Impossible Kicks.
One option could be for Adidas to donate the proceeds from the sale of reallocated Yeezy stock to charity, Golden said.
[1/3] Adidas merchandise is seen at an Adidas store on the day the German company ended its partnership with American rapper and designer Kanye West, now known as Ye, in Garden City, New York, US, October 25, 2022. REUTERS/Shannon Stapleton
The split cost Adidas sales 600 million euros ($632 million) in the fourth quarter of 2022, and Yeezy shoes could have brought in about $1.2 billion in revenue this year.
Gulden said ending Yeezy — a decision that preceded his tenure — was the right thing to do, but added that it was “very sad” and that it would take time for Adidas to build a new brand that had the same impact.
Filling the gap left by Yeezy won’t be easy, Golden said.
One area of growth he points to is the trend of “balcony” style sneakers like the Samba, Gazelle, and Spezial. He cited Adidas stores selling Samba shoes waiting in lines of shoppers in China.
“For the first time in a long time, people are lining up to buy an Adi product other than Yeezy.”
Less discount
In general, Gulden said Adidas needs to reduce inventory levels and reduce discounting. Inventories reached just under 6 billion euros at the end of December, up 49% from the previous year, including 400 million euros of Yeezy products.
The company projected an underlying operating profit for 2023 roughly at break-even when factoring in a $500 million loss from not selling existing Yeezy stock.
If Adidas decides not to repurpose the products, it will write off the inventory entirely, reducing the profit by another $500 million. That, along with $200 million in one-time costs, will cause Adidas to lose $700 million this year.
RBC analysts said they see a full cut as the most likely scenario.
Analysts at Wedbush who track new sneaker product launches said Nike is likely to take market share from Adidas in the absence of new Yeezy designs.
($1 = 0.9493 euros)
(Reporting by Alexander Hubner and Helen Reed). Additional reporting by Frederick Heine and Uday Sampath Kumar. Editing by Paul Carell, Matt Scoffam, and Emilia Sithole Matares
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