Adidas boss turns eyes after Kanye West split

  • The 2022 split with Kanye West is calculating results
  • Dividend will drop to 0.7 euro/share
  • The CEO promises after forecasting a 2023 loss
  • Adidas is still deciding whether to restock the Yeezy

HERZGENAURACH, Germany/LONDON, March 8 (Reuters) – Adidas ( ADSGn.DE ) will cut its 2022 dividend, the sportswear maker said on Wednesday, after warning that a split with the artist formerly known as Kanye West could push it into its first year. This year is the loss in three decades.

Chief executive Björn Gulden, who will speak to investors for the first time on January 1, has vowed to rebuild the battered brand, overcoming the fallout from Adidas ending its partnership with West. Yep, it spawned the lucrative Yeezy sneaker line.

Adidas did not say how much the Yeezy brand has earned since its first deal with Yee in late 2013, but analysts estimate it at 7% of total sales in its best years.

The company needs to focus on its core business and faces a “transitional” year before returning to profitability in 2024 and returning to its sports-based roots, Gulden said.

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

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

Adidas shares were down 2.1% by 1230 GMT. However, they have outperformed rivals Puma and Nike since the start of the year, a sign that investors are backing Gulden.

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“We believe the stock has not discounted the time it will take to rebuild the brand and margins,” Credit Suisse analyst Simon Irwin said in a note.

The company severed ties with Ye in October following a series of anti-Semitic comments he made on social media and in interviews, prompting Twitter and Instagram to restrict his accounts on their platforms.

Gulden said Adidas is still deciding what to do with unsold Yeezy shoes. Burning shoes presents a sustainability problem, while donating them to charity is problematic due to their resale value, which has increased since the split.

A pair of Yeezy 350 “Zebra” shoes is now selling for $340 to $360, up from $260 four months ago, according to John Mogadlow, CEO of American sneaker reseller Impossible Kicks.

One way, Gulden said, is to donate proceeds from the sale of recycled Yeezy stock to adidas charity.

The split will cost Adidas 600 million euros ($632 million) in the fourth quarter of 2022, and Yeezy shoes would have brought in $1.2 billion in revenue this year.

Gulden said ending Yeezy — a decision that was made before he took the helm — was the right thing to do, but added that it was “very sad” and that Adidas would take time to build a new brand.

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Filling the void left by Yeezy won’t be easy, Gulden said.

One area of ​​growth he pointed to is the trend toward “terrace” style sneakers like the Samba, Gazelle and Special. He cited Adidas stores selling Samba shoes and drew lines of shoppers in China.

“For the first time in a long, long time, people are lining up to buy an original product that isn’t Yeezy.”

Less discount

All in all, Gulden said, Adidas should reduce inventory levels and offer lower discounts. Including 400 million euros of Yeezy products, the inventory was up 49% from the previous year and came in at just under 6 billion euros at the end of December.

Taking into account the $500 million loss from not selling existing Yeezy stock, the company predicts that 2023’s underlying operating profit will be roughly breakeven.

If Adidas decided not to remanufacture the products, it would eliminate the inventory entirely, reducing profits by another $500 million. That, along with the $200 million in one-time costs, would put Adidas at a $700 million loss this year.

RBC analysts said they see a full write-off as the most likely scenario.

Analysts at Wedbush, which tracks new sneaker product launches, said that in the absence of new Yeezy designs, Nike is likely to take market share from Adidas.

Adidas lags behind Nike and Puma

($1 = 0.9493 euros)

Reporting by Alexander Huebner and Helen Read; Additional reporting by Friedrich Heine and Uday Sampath Kumar; Editing by Paul Carrell, Matt Scuffham, and Emilia Sithole-Maderaise

Our Standards: Thomson Reuters Trust Principles.

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