(BFM Bourse) – The end of the partnership with the controversial singer, carried out last year, could cut 1.2 billion euros in sales for the current financial year. And the other forecasts for 2023 worry the market.
Adidas delivers a very bad publication to the market, a few months after cutting ties with Kanye West, following his anti-Semitic statements on social networks.
The sports equipment manufacturer had thus decided in October to stop the production of articles of the Yeezy brand, object of a partnership with the rapper since 2014.
By coincidence, all this happened while the group was looking for a new general manager, whom it finally found at the end of 2022. The name of the chosen one is Bjørn Gulden, a former top athlete in both football and handball, and especially defector of the little brother and rival of Adidas, Puma.
It is this same Bjørn Gulden who engaged in a fairly common exercise on Thursday evening for new leaders: giving very cautious forecasts and thus cleaning up the accounts in order to then be able to offer good surprises to the market. Consequently, the objectives communicated for 2023 prove to be very uninviting.
Fall in sales in 2023
Adidas has warned that if it fails to sell its remaining stocks of Yeezy products, its sales will be penalized by 1.2 billion euros in revenue and its operating profit by 500 million. euros in operating profit over 2023. On this basis, Adidas expects its sales excluding currency effects to show a “high single digit” decline this year, i.e. a drop of between 5% and 9 %. Underlying operating profit is expected to break even.
Worse, this indicator could show a loss of 700 million euros due to two additional elements. First, Adidas might not give a future in any form to existing Yeezy products at all. This would result in a total depreciation of inventories, with an additional impact of 500 million euros at the level of operating profit. In addition, Adidas could record additional exceptional costs of 200 million euros, linked to a strategic review intended to “re-ignite its growth”.
“Like most new CEOs, he decided to set the bar low in terms of results, playing it safe to avoid another profit warning early in his term,” Stifel said.
On the Frankfurt Stock Exchange, Adidas is suffering, falling 11.6% around 4 p.m., to 137.30 euros. But it seems that investors are not only concerned about the impact of Yeezy, which remains an exceptional element, and more or less already anticipated by the market. “We are more concerned about the underlying situation”, underlines Stifel, who worries about “the extent of caution incorporated into the forecast for 2023”.
Deutsche Bank points out that Adidas was expected to take the hammer to hit its forecasts. But not as strongly, since the consensus expected an operating result for 2023 of 1 billion euros, and this therefore including the negative impacts of Yeezy.
“We expect to see consensus EBIT (operating income) forecasts for 2024 and 2025 decline by more than 20%, with a similar share price reaction,” the German bank anticipated in a note published before. the opening of the market.
Resuscitation will take time
The same goes for Royal Bank of Canada, which says it has “been taken aback” by the weak underlying performance suggested by the company’s forecasts. The Canadian bank estimates that excluding the impact of the exit of Yeezy, the group’s sales should decline excluding the exchange rate effect, “low-mid single digit”, i.e. a drop of between 1% and 4%.
Added to these deleterious prospects is the preliminary publication of 2022 results in free fall. Sales have certainly increased by 1%, excluding the exchange rate effect. But the margin fell to 3% against 9.4% in 2021 and net profit was divided by almost six, to 254 million euros. “The figures speak for themselves. Currently, we are not performing as well as we should”, acknowledged Bjørn Gulden, CEO of Adidas, who evokes “a year of transition”.
But the years of transition can sometimes drag on…” This release can be a reality check for the market. first signs before the second half of 2024″, warns UBS. “There is a lot to do” at Adidas “which will take time”, supports Royal Bank of Canada.
Julien Marion – ©2023 BFM Bourse