Adidas reports declining sales in North America due to ongoing Yeezy inventory clearance.

• Worldwide, currency-neutral sales are expected to grow at a mid-single-digit rate in 2024, while in North America, they are expected to decline at the same rate.
• Adidas reported a 2023 operating profit of 268 million euros ($292.9 million), despite flat currency-neutral sales, exceeding prior expectations.

The German sportswear brand warned of a sales decline in its North American market in 2024, as it continues to sell off its remaining Yeezy inventory.

Despite persistent "macroeconomic challenges and geopolitical tensions," the company expects currency-neutral sales in North America to decline to a mid-single-digit rate in 2024, but are projected to notch mid-single-digit growth worldwide.

Adidas reported a 2023 operating profit of 268 million euros ($292.9 million), despite flat currency-neutral sales, due to the cancellation of its Yeezy collaboration with American rapper Ye, formerly known as Kanye West.

In the fourth quarter, the company incurred an operating loss of 377 million euros. The board recommended a flat dividend of 0.70 euros per share.

Despite not being satisfactory, 2023 ended better than what CEO Bjørn Gulden had anticipated at the start of the year, as he stated in a statement.

"Although we lost a significant amount of Yeezy revenue and employed a conservative sell-in strategy, we were able to maintain flat revenues. We anticipated a substantial negative operating result, but instead achieved an operating profit of €268 million."

Adidas announced that it would not write off the majority of its Yeezy inventory and would instead sell off the remaining shoes at cost, after confirming preliminary results released in late January.

The Yeezy line was discontinued by the sportswear giant following the termination of its partnership with Ye due to his anti-Semitic remarks in 2022.

The discontinuation of Yeezy resulted in a loss of approximately 500 million euros in the year-on-year comparison through 2023. However, the sale of parts of the remaining inventory in the second and third quarter positively impacted net sales by around 750 million euros.

Gulden stated that by implementing a strict go-to-market and buying process, we were able to decrease our inventories by approximately €1.5 billion. However, this reduction did not apply to the U.S., where our inventories remain healthy.

The company anticipates growth in the first quarter of 2024 and a significant increase in the second half of the year, as stated.

"Although we still have a lot of work to do, I am confident that we are on the right track. We will bring adidas back again. Just give us some time, and we will say – we got this!" he said.

Adidas expects to have an operating profit of approximately 500 million euros in 2024, but unfavorable currency effects will negatively impact the company's profitability by affecting both reported revenues and gross margin growth.

Adidas shares were flat by mid-morning on Wednesday.

The most interesting aspect of Wednesday's report, according to Mamta Valechha, equity research analyst at Quilter Cheviot, was the "clear acceleration of the Adidas brand."

The sportswear industry, including Adidas, will prioritize performance, with the first half still being affected by initiatives to reduce high inventories, particularly in North America, as stated in an email.

"Despite retailers being cautious, order books for the first half of the year remain weak. However, demand is expected to increase due to the Olympics and Euros this summer."

Adidas plans to achieve top-line growth by expanding on successful shoe lines such as Samba and Gazelle, and simultaneously launching new ones.