Adidas announced plans to slash its dividend and declared 2023 a “transition year” on Wednesday, as the company struggles to reposition itself after terminating its lucrative partnership with Kanye West and the Yeezy brand last year.
At the same time, the company said it was still deciding what to do with about 1.2 billion euros’ (nearly $1.3 billion) worth of Yeezy sneakers and other sportswear, including potentially selling it and donating profits “to do something good.”
The dividend would drop to €0.70 a share from the current €3.30, a move to save money as the German sportswear giant regroups under a new chief executive who said he wanted a return to traditional product lines.
“We need to reduce inventories and lower discounts,” said Bjorn Gulden, who became chief executive in January after leading Puma. “Adidas has all the ingredients to be successful. But we need to put our focus back on our core: product, consumers, retail partners and athletes.”
Even as the company looks to grow its soccer, running, outdoor and golf lines, Mr. Gulden said that he remained hopeful that collaborations with social media influencers and pop culture stars, including Beyoncé and Pharrell Williams, would pick up in the coming year. They are part of the company’s lifestyle sector, which in recent years has been key to boosting Adidas’ popularity with wider audiences, especially in the United States.
But after one of its most successful collaborators — the musician Kanye West, now known as Ye — made a series of antisemitic remarks, Adidas was forced to sever its business alliance with him in October.
That move left the company with a mound of sneakers and clothing from the terminated agreement, resulting in potential losses of €1.2 billion in sales and about €500 million in profit this year. Mr. Gulden said that Adidas had decided to continue with the production of Yeezy products that were in the pipeline when the contract was severed, to prevent thousands of people involved from losing their jobs, leaving inventory stacked in warehouses around the world.
“If we sell it, I promise that the people who have been hurt by this will also get something good out of this,” Mr. Gulden said. He did not elaborate on whom he meant, but added that donating the proceeds would make more sense than just giving away the shoes, which have an outsized value on the resale market among collectors and other fans. Before last year’s uproar, Yeezy sneakers often sold for hundreds of dollars a pair.
The company has previously said that it was “the sole owner of all design rights to existing products” under the partnership, but Mr. Gulden said Wednesday it would not consider rebranding the Yeezy inventory. If it were sold, instead of being destroyed, Ye would still be entitled to a portion of the proceeds as stipulated under his royalty agreement, although Adidas would not make a profit, he said.
“Losing the Yeezy business is so hard,” Mr. Gulden told reporters Wednesday, praising the creativity of the collaboration on multiple levels from design, to marketing to its use of social media and apps.
“There is no other Yeezy business in the market,” he said. “The people who think you can just replace this with something else — you can’t.”
Adidas reported a 6 percent gain in net sales in 2022, to €22.5 billion, but operating profit fell 66 percent, to €669 million. Its decision to pull out of Russia after the invasion of Ukraine last year resulted in one-off costs of €59 million. In China, the company’s largest market, the extended “zero Covid” lockdowns last year resulted in a 36 percent drop in revenue compared to the previous year and contributed to more unsold inventory.
The losses forced the company to issue four profit warnings over six months, leading both Moody’s and S&P to downgrade its debt last month.
For 2023, Adidas forecast underlying operating profit at roughly break-even level when taking into account the sales loss, should it fail to find a way to sell the existing Yeezy stock.
Adidas faces numerous other challenges beyond its breakup with Ye. The company has been losing market share to Nike and other rivals including Puma, which Mr. Gulden led until moving to Adidas at the start of this year.
Adidas said it planned to cut its dividend as part of the cost-saving measures, pending approval from shareholders at their annual meeting in May.
Source : Nytimes
