“Catastrophic” is the blunt assessment of Adidas AG’s 2023 outlook, as given by Saxo Bank’s Peter Garnry.
Adidas’ Kanye West-sized PR nightmare is the first and most obvious headwind blowing the German sportswear giant’s track off course.
No stranger to controversy, Yeezy’s string of anti-Semitic rants and Nazi-sympathising rhetoric on far-right platform Infowars, which proved unpalatable even for conspiracy-hawking host Alex Jones, proved to be the nail in the coffin for his highly successful Adidas partnership.
Adidas stands to lose €1.2bn (£1bn) in lost revenue after deciding not to sell the remaining Yeezy-branded inventory.
However, Adidas’ problems appear to go deeper than Ye.
Removing the Kanye conundrum from the balance sheet, Garnry noted that the company would still be struggling to break even, in stark contrast to previous years.
Brand Kanye was a massive factor in Adidas’ operating income, so much so that the inherent business risk probably wasn’t priced in appropriately.
“Something very deep is broken at Adidas,” said Garnry, who pointed out that Adidas’ revenue growth trajectories were far below competitor Nike, even before the group consciously uncoupled from Kanye.
Partially this is due to declining revenues in China following the Xinjiang cotton controversy.
Despite Adidas claiming to have revised its Chinese supply chain following allegations of widespread forced labour in the region, researchers last year discovered evidence to the contrary.
But stripping out the weakness in the Chinese business and the fallout from Yeezy still does not make up for the lower revenue growth compared to Nike, according to Garnry.
If Adidas doesn’t get its shop in order, the group risks being “left at the station and never catching up with Nike”, he said.
Over at Deutsche Bank, analysts have cut their 2024 year-end earnings per share (EPS) target by 34% to €4.45, and their 2025 target by 26% to €6.98.
Deutsche Bank’s price target has been revised down to €160 per share from €170.