What’s Going On Here?German sportswear giant Adidas didn’t have a sporting chance, posting a mishit of an update on Wednesday. What Does This Mean?Adidas is in a bit of a pickle right now. For one, sales in China – the company’s one-time growth engine – dropped by half last quarter, as local competitors and lockdowns kept shoppers away. And for another, the company faced the thorny matter of Ye (formerly known as Kanye West): a series of controversial comments saw Adidas end its collaboration with the rapper, shelving his highly popular Yeezy sneaker line to boot. That move didn’t just lose the firm sales last quarter, it also left Adidas with a $1-billion-plus heap of unsellable gear. It came as no huge surprise, then, that the sportswear giant posted an operating loss last quarter. But what did shock shareholders was the outlook: the company said the break with Ye could make 2023 its first annual loss in 31 years – and that, combined with a 79% dividend cut, had investors heading for the exits. Why Should I Care?Zooming in: Not so "Happy".
Adidas is facing a real doozy here. Yeezys make up less than 10% of its revenue, but they’re estimated to account for over 40% of profit – and that means Adidas is staring down the barrel of a serious financial threat, even if it manages to repurpose and sell the remaining stock. What’s more, the association with Ye probably gave Adidas’ other offerings a popularity boost too, so the firm will have to rely on different famous collaborators to plug the gap from now on. (Good luck, Pharrell Williams.)
The bigger picture: Just do it.
This news will have Nike – Adidas’ arch-rival and the biggest sportswear company in the world – cracking a smile. Reports say that Nike’s already benefiting, dominating last month’s sneaker sales. And that’s got analysts thinking the fitter firm will keep advancing as Adidas retreats, laying claim to its competitor’s market share. | 