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Adidas CEO Considers a Turnaround Following Kanye West’s Split

Adidas will lower its 2022 dividend after warning that a rift with the artist formerly known as Kanye West could cause it to post its first annual loss in three decades this year.

Speaking to investors for the first time since taking over on Jan. 1, CEO Bjorn Gulden committed to restore the battered brand after dealing with the consequences from the end of Adidas’ association with West, who now goes by Ye, which delivered the lucrative Yeezy sneaker line.

Adidas has not disclosed how much money the Yeezy brand has made since its first partnership with Ye at the end of 2013, but analysts think it amounted for up to 7% of total sales in its best years.

The company needs to refocus on its core business and faces a “transition” year before returning to profit in 2024, and will return to its sports-based roots, Gulden said.

“You will see us invest in more sports… because that is the DNA of this company,” he told reporters.

At the company’s annual general meeting on May 11, it would recommend a dividend of 0.70 euros ($0.7374) per share, down from 3.30 euros per share in 2021.

Adidas shares recovered early losses to trade 1.6% higher at 1530 GMT. From the beginning of the year, they have beaten rivals Puma and Nike, indicating that investors believe in Gulden.

“We believe the shares fail to discount the time it will take to rebuild the brand and margins,” Credit Suisse analyst Simon Irwin said in a note.

Following a string of antisemitic comments he made on social media and in interviews, the corporation severed connections with Ye in October, prompting Twitter and Instagram to ban his accounts on their sites.

Gulden stated that Adidas was still deciding what to do with their unsold Yeezy sneaker supply. He claims that burning the shoes is not sustainable, and that donating them to charity is hampered by their high resale value since the split.

According to John Mocadlo, CEO of US sneaker reseller Impossible Kicks, a pair of Yeezy 350 “Zebra” shoes is now selling for between $340 and $360, up from roughly $260 four months ago.

Gulden suggested that Adidas give the earnings from the sale of repurposed Yeezy stock to charity.

Adidas lost 600 million euros ($632 million) in sales in the fourth quarter of 2022 as a result of the separation, whereas Yeezy sneakers would have brought in an estimated $1.2 billion this year.

Gulden said discontinuing Yeezy – a decision made before he took over – was the appropriate thing to do, but it was “extremely sad” and that it would take time for Adidas to establish a new brand as influential as Yeezy.

Plugging the gap left by Yeezy will not be easy, Gulden said.

One area of growth he pointed to was a trend for “terrace” style sneakers like the Samba, Gazelle, and Spezial. He said a pop-up store in Shanghai selling Samba shoes drew queues of shoppers earlier this week.

“For the first time in a long, long, time people are lining up to buy an Adi product that is not Yeezy.”

Less discounting

Gulden believes Adidas could lower inventory levels and discount less. At the end of December, inventories were just under 6 billion euros, up 49% from the previous year, and included 400 million euros in Yeezy items.

When the $500 million loss from not selling existing Yeezy stock is factored in, the business forecasts an underlying operating profit of around break-even in 2023.

If Adidas does not repurpose the products, it will write down the inventory entirely, reducing profit by another $500 million. This, combined with $200 million in one-time charges, would result in a $700 million loss for Adidas this year.

RBC analysts said they see the full write-down 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.


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