Adidas Expects North America Sales to Lag Global Recovery — 2nd Update

By Pierre Bertrand

Adidas said it expects North American sales to fall this year, lagging behind its forecasts for global growth led by China and Latin America.

The German athletic apparel and footwear company has been working to clear excess inventory in recent quarters, especially in North America. It has been in transition ever since it terminated its lucrative collaboration with rapper Kanye West, known as Ye, in 2022, which led to a significant hit to profitability.

The company, which chose not to write off most of its Yeezy inventory, said in January that it instead intended to sell off what was left for at least the cost price this year.

North America was particularly affected in 2023 by the fallout resulting from the collapse of the partnership with the musician and fashion-brand owner, as well as by high inventory levels, the company said Wednesday.

As a result of its inventory-reduction efforts, the company expects sales in North America to decline by a mid-single percentage digit this year excluding Yeezy revenue and adjusted for currency movements. In 2023, Adidas's North America sales fell 16%, reflecting lower Yeezy sales.

Larger U.S. rival Nike in December cut its revenue outlook for the year to May and warned consumers were turning more cautious with their spending.

North America is the only region where Adidas doesn't anticipate sales growth this year, it said. In the greater China region and Latin America the company expects sales to grow at double digits, excluding Yeezy sales and currency movements.

The company cautioned, however, that sales growth this year is expected to be geared toward the second half as its first-half performance will be hurt by work to reduce inventories in North America. It reaffirmed that sales of remaining inventory wouldn't contribute to its operating profit this year.

"We should see some growth already in 1Q, but I expect growth to be stronger in the second half of the year. We still have a lot of work to do, but I feel very confident we are on the right track," Chief Executive Bjorn Gulden said.

Gulden added that Adidas has managed to reduce its inventories by almost 1.5 billion euros ($1.64 billion), or 24%, last year and that, excluding the U.S., inventories are at healthy levels.

Adidas is six to eight months behind on its recovery in North America, Gulden said at a post-earnings conference.

The company said it would propose a flat EUR0.70 a share dividend for 2023 and that it plans to return to its policy of paying annual dividends to shareholders in the range of 30% to 50% of net income from continuing operations.

That comes after Adidas posted a EUR75 million net loss last year compared with EUR612 million in profit in 2022, on sales that, as disclosed in January, declined 5% to EUR21.43 billion.

Adidas also confirmed its previous 2024 guidance for around EUR500 million in operating profit and for currency-neutral sales to grow at a mid-single-digit rate.

Write to Pierre Bertrand at pierre.bertrand@wsj.com

(END) Dow Jones Newswires

March 13, 2024 08:58 ET (12:58 GMT)

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