On Thursday evening in Europe, Adidas reported preliminary results for its business year in 2022.
The German company reported that last year revenues increased by just 1 percent, in currency neutral terms, to 22.51 billion euros. The result is in line with Adidas’ guidance, albeit at the lowest end.
During 2022, Adidas ratcheted down full-year guidance three times. At the start of 2022, the German brand optimistically expected between 11 and 13 percent growth. By November, when third-quarter results were announced, Adidas was predicting only low-single-digit growth.
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Adidas has had a tough year. The company, the second-biggest sportswear brand in the world after Nike, had not yet recovered from a consumer boycott and sales downturn in China due to the COVID-19 pandemic when it was forced to cut ties with musician Kanye West in October, due to his increasingly erratic behavior and controversial comments.
West collaborated with Adidas for seven years on the extremely popular Yeezy range. Adidas doesn’t disclose what it earns from the line but industry experts have suggested it was making Adidas between 1.5 billion euros and 2 billion euros a year, and potentially even around 40 percent of the company’s annual profits, due to the favorable pricing. At the time of the split with West, Adidas said the end of the relationship would likely cost it up to 250 million euros in net profit.
Those numbers were reflected in even more significant decreases in preliminary results for operating profit and net income from operations in 2022. Whereas in 2021 Adidas made just over 1.89 billion euros in operating profit, in 2022 this fell to 669 million euros. Net income from continuing operations in 2022 totaled 254 million euros, a substantial decrease from 2021’s total of 1.49 billion euros.
The company’s new chief executive officer Bjørn Gulden conceded in a statement that “the numbers speak for themselves. We are currently not performing the way we should.”
Gulden previously headed competitor brand Puma, which racked up a series of record breaking results under nine years of his leadership. Gulden took on the Adidas job at the end of 2022. But it was already clear he would be dealing with major challenges.
“2023 will be a year of transition….Adidas has all the ingredients to be successful,” Gulden, who is known as a straight talker, continued in the statement. “We need to put the pieces back together again, but I am convinced that over time we will make Adidas shine again. But we need some time.”
It’s likely that Gulden and his colleagues will need all of 2023, possibly even longer, to bring back that shine. At the same time that the company issued its preliminary results for 2022, it also made predictions for this year.
Depending on what Adidas decides to do with existing Yeezy stock — that is, whether it sells or repurposes it — the brand could lose as much as 1.2 billion euros in revenues and see 1 billion euros shaved off operating profit in 2023.
This would then result in an operating loss of 700 million euros over the course of this year, Adidas said. That’s the kind of loss the brand has not seen since the early 1990s. Adidas also predicted that its sales would decline in the high-single digits during 2023, in currency neutral terms.
Although the announcement was made after the close of trading on Germany’s DAX stock market, other trading trend indicators suggested that Adidas shares would have fallen 5 percent on the announcement, had the market still been open.