Adidas recently announced a warning about a potential sales decline in the North American market for 2024, attributing it to an oversaturated inventory situation. Despite this, the brand remains optimistic about achieving mid-single-digit growth globally, even amidst ongoing macroeconomic challenges and geopolitical tensions.

The company confirmed a 2023 operating profit of 268 million euros, which exceeded prior expectations due to flat currency-neutral sales. The termination of the Yeezy line had a significant impact on the company’s financials, resulting in an operating loss of 377 million euros in the fourth quarter. Despite this setback, the board proposed a dividend of 0.70 euros per share, showing a commitment to shareholder returns.

Adidas made the strategic decision to sell off its remaining Yeezy inventory at cost, rather than write it off entirely. The discontinuation of the Yeezy line was a result of the brand’s partnership termination with rapper Ye, formerly known as Kanye West, following anti-Semitic remarks made in 2022. This move had a negative impact on the company’s financials, with an estimated drag of around 500 million euros in comparison to the previous year.

CEO Bjørn Gulden highlighted the company’s disciplined inventory management approach, which led to a reduction of nearly 1.5 billion euros in inventory levels. Apart from the U.S., Adidas now maintains healthy inventory levels across all regions. This strategic inventory reduction is expected to set the stage for future growth in the coming quarters.

Looking ahead to 2024, Adidas projects an operating profit of around 500 million euros. However, unfavorable currency effects are anticipated to weigh significantly on the company’s profitability, impacting reported revenues and gross margin development. The brand is confident in its ability to achieve growth in the first quarter of 2024, with further acceleration expected in the second half of the year.

Mamta Valechha, equity research analyst at Quilter Cheviot, noted the clear acceleration of the Adidas brand as a significant aspect of the recent report. While the first half of 2024 may see continued challenges in North America due to inventory initiatives, Valechha expects demand to pick up in the latter half of the year, driven by events like the Olympics and Euros.

To drive top-line growth, Adidas plans to focus on scaling up successful shoe lines such as Samba and Gazelle, while also introducing new product lines. By leveraging its core strengths and responding to market trends, the brand aims to regain its competitive edge and attract a broader consumer base.

While facing challenges in the North American market, Adidas remains committed to navigating the current landscape and driving sustainable growth. Through strategic inventory management, financial prudence, and a focus on product innovation, the brand seeks to overcome obstacles and position itself for long-term success in the global sportswear industry.

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