Adidas AG has recently divulged that its projected profit for the current fiscal year is set to encounter headwinds due to the impact of unfavorable currency movements. It has outlined a proactive strategy to mitigate some of the potential damage. Adidas plans to leverage its remaining inventory from the now-defunct Yeezy partnership with the rapper Ye, aiming to sustain sales momentum as reported by Bloomberg.
According to a statement released on a recent Wednesday, Adidas expects to achieve an operating profit of approximately €500 million ($542 million). This projection, however, falls significantly below the average estimate of €1.27 billion as predicted by financial analysts.
Unsurprisingly, this revelation had repercussions in the stock market, leading to an 8% decline in Adidas's American depositary receipts after the close of European exchanges. Furthermore, competitors in the athletic apparel sector, such as Nike Inc. and Under Armour Inc., experienced parallel declines, reaching as much as 2.6%.
In an intriguing move to counterbalance potential losses, Adidas has revealed its intention to sell the remaining Yeezy inventory at cost, anticipating sales amounting to €250 million.
This strategic decision deviates from the conventional practice of writing off unsold inventory and reflects Adidas's commitment to exploring alternative avenues to salvage value.
Despite facing an estimated €1 billion currency impact stemming from various factors, including the devaluation of the Argentine peso in 2023, Adidas remains optimistic about its trajectory. The company foresees a return to growth in the current fiscal year, underscoring its commitment to ongoing turnaround efforts in light of growing concerns about the global demand for sneakers and sports gear.
Looking ahead, Adidas projects that its currency-neutral sales will experience a percentage increase in the mid-single digits for the year 2024, aligning closely with the predictions put forth by financial analysts.
This forecast is not made lightly, especially under the leadership of Chief Executive Officer Bjorn Gulden, who is embarking on his second year at the helm of Adidas.
Gulden, known for delivering conservative outlooks early in the year, has built a reputation for consistently outperforming such projections—a hallmark of his decade-long tenure as CEO of crosstown rival Puma SE.
In a noteworthy reflection of its performance in the preceding financial year, Adidas disclosed that its currency-neutral revenue remained stable in 2023. This represents a notable improvement over earlier targets, offering a glimmer of resilience in a dynamic market landscape.
Meanwhile, investors in the athletic apparel sector are keenly observing these developments, particularly in the wake of Nike's reservations about consumer demand in China and globally, coupled with Puma's warnings about the impact of hyperinflation in Argentina. The industry remains on tenterhooks, awaiting cues that could potentially signify weaknesses or strengths in this competitive market segment.
31.01.2024
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