Pro Content

adidas’ Fiscal 2023 Ended Positive, Depsite Low Q1 & Q2 Performances

Major developments FY 2023

Currency-neutral sales flat versus prior year; significantly above initial expectations
Top-line development reflects conservative sell-in, focus on full-price business, and lower Yeezy sales
Gross margin up 0.2pp to 47.5%, due to better business mix and lower freight costs; largely offset by significant negative FX effects, higher product costs, and higher discounting
Operating profit of €268 million almost €1 billion better than initially expected
Inventories improve strongly to €4.5 billion, down almost €1.5 billion year-over-year
Executive and Supervisory Boards propose dividend of €0.70 per share

Major developments Q4 2023

- Currency-neutral sales down 2%, including 5pp drag from Argentine Peso devaluation
- Gross margin up 5.5pp to 44.6% due to less discounting, lower freight costs, and better business mix; partly offset by significant negative FX effects and higher product costs
- Operating loss of €377 million

Outlook for FY 2024

Currency-neutral revenues to increase at a mid-single-digit rate; remaining Yeezy inventory assumed to be sold at cost
Underlying adidas business to grow at a high-single-digit rate
Operating profit of around €500 million projected, accounting for significant translational and transactional FX headwinds

adidas CEO Bjørn Gulden:
“Although by far not good enough, 2023 ended better than what I had expected at the beginning of the year. Despite losing a lot of Yeezy revenue and a very conservative sell-in strategy, we managed to have flat revenues. We expected to have a substantial negative operating result, but achieved an operating profit of €268 million. With a very disciplined go-to-market and buying process, we reduced our inventories by almost €1.5 billion. With the exception of the US, we now have healthy inventories everywhere.

Maybe more important than the short-term financial KPIs are the improvements we achieved with the consumers and the retailers. We have launched and scaled some of the most popular footwear models in the market. Samba, Gazelle, Spezial, and Campus are selling very well
and are also growing in all global web searches. We will continue to keep the momentum on
these models, but also heat up and scale models like SL 72 and Superstar and launch new models in the lo profile and running lifestyle segment. We feel we are in a very good position to grow in the footwear lifestyle segment and expect this to also have a very positive effect on
lifestyle apparel, especially collections with our famous Three Stripes.

On the Performance side, we have launched a lot of innovative products: The Adizero Adios
Pro Evo 1 shoe, 138 grams light and probably the most innovative running shoe on the market,
set the marathon world record with Tigist Assefa (2:11:58) and has won an unbelievable
number of races. We are very proud of all our Adizero running products and expect to see
further improvement in the running business, not only on the high end, but also in the
commercial every-day-runner segment.

We already have a good Outdoor footwear business, but with the introduction of the Agravic
Speed Ultra, we are confident to also be a major player in the trail running market. The product for 2024 is good, our new marketing campaigns for both Originals and in Performance will continue to strengthen the brand. Our Sportswear business with clear takedown strategies will strengthen the distribution in the commercial channels in both wholesale and DTC.

In the fourth quarter, revenues in our DTC concept stores were up double digits, and the adidas full-price sell-out on our own e-commerce platforms was up 40%. Both indications that our new product is resonating well with the consumer.

We should see some growth already in Q1, 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. We will bring adidas back again. Give us some time and we will again say – we got this!”

Financial Performance in FY 2023

Currency-neutral revenues on prior-year level
In 2023, currency-neutral revenues were flat compared to the prior year. This was significantly better than the initially expected high-single-digit decline and also ahead of the company’s latest guidance provided in October, which had still projected a low-single-digit sales decline. This outperformance was driven by the accelerating momentum in the company’s underlying business. In addition, adidas also benefited from the sale of parts of the remaining Yeezy inventory. In euro terms, revenues declined 5% to €21,427 million (2022: €22,511 million).

Reported revenues include the negative translation impact of more than €1 billion from unfavorable currency movements, which are expected to continue to weigh on the company’s top-line development in 2024.

The top-line development in 2023 was impacted by significantly reduced sell-in to the
wholesale channel as part of the company’s successful initiatives to reduce high inventory
levels in the trade. In addition, the discontinuation of the Yeezy business represented a drag
of around €500 million on the year-over-year comparison during 2023. The sale of parts of
the remaining Yeezy product in the second and third quarter positively impacted net sales by
around €750 million in 2023. This compares to a total of more than €1,200 million of Yeezy
revenues in 2022. Excluding the Yeezy revenues in both years, currency-neutral revenues
grew 2% in 2023.

Iconic franchises create excitement across many categories
From a category perspective, currency-neutral revenues in Performance grew at a midsingle-digit rate in 2023. This growth was mainly driven by high-single-digit increases in Football, Outdoor, and Specialist Sports. The company benefited from strong momentum for many of its new product introductions, such as the latest iterations of its iconic Predator, X and Copa football boots. In addition, the next generation of the Terrex Free Hiker outdoor boots and newly launched versions of the Barricade tennis shoe resonated very well with the consumer. In Running, the Adizero product family in general and the introduction of the Adizero Adios Pro Evo 1 in particular led to record-breaking performances at marathon races around the world. This generated a lot of attention and strong demand for the entire franchise.

As a result, the Adizero business grew more than 50% in 2023. Currency-neutral revenues in Lifestyle declined, reflecting the significant Yeezy impact. However, extraordinary demand and increasing supply for the company’s Samba, Gazelle, Spezial, and Campus franchises drove a mid-single-digit top-line improvement in Originals as well as double-digit growth in Skateboarding.

Double-digit growth in own retail stores reflecting strong sell-out trends
As a result of the company’s initiatives to reduce high inventory levels, currency-neutral sales
in wholesale declined 4% despite double-digit growth in Latin America and Greater China. At the same time, direct-to-consumer (DTC) revenues grew 3% versus the prior year. This development was driven by strong growth in adidas’ own retail stores (+12%) due to strong
double-digit growth in all markets except North America. Growth was particularly strong in the company’s concept stores, reflecting the improving sell-out trends adidas has been experiencing for its current product range. The company’s e-commerce business declined 5% due to the Yeezy impact. In addition, adidas focused on reducing discounting activity and improving the overall business mix on its own online platforms.

Financial Performance in Q4 2023

Sales development significantly impacted by devaluation of the Argentine Peso
Currency-neutral revenues in the fourth quarter declined 2%, including a drag of around 5 percentage points related to the devaluation of the Argentine Peso. In addition, the lack of any
Yeezy business weighed on the year-over-year comparison in an amount of around €100 million. During the quarter, the company also continued its disciplined sell-in to the wholesale channel to reduce high inventory levels, particularly in North America. In euro terms, revenues declined 8% to €4,812 million in Q4 (2022: €5,205 million), including the negative translation impact of around €300 million from unfavorable currency movements.

Double-digit growth in Originals and Skateboarding drives strong increase in footwear
Despite the significant Yeezy impact, currency-neutral footwear sales were up 8% in the fourth quarter driven by strong double-digit growth in Originals and Skateboarding. This development reflects the continued scaling of the adidas Samba, Gazelle, Spezial, and Campus franchises in light of very strong consumer demand. Apparel revenues declined 13% during the quarter, which was mainly the result of a significant decline in Football due to strong jersey sales in the prior year’s quarter related to the FIFA Football World Cup 2022.

Sales of accessories, such as sunglasses, declined 1% in the fourth quarter, which was also mainly related to difficult comparisons with the prior year due to the FIFA Football World Cup in 2022.

Look back over adidas’ fiscal 2023: