Adidas’ Q4 Sales Drop; Challenges to Linger

German sportswear manufacturer Adidas (GB:0OLD)(ADDY) posted weak Q4 financials. The company’s move to terminate the Yeezy partnership, challenges in China, and elevated inventory levels due to declining consumer demand took a toll on its performance. While 2022 turned out to be a challenging year, 2023 won’t be a cakewalk either, as geopolitical and macro headwinds, and company-specific challenges, are likely to hurt its growth. 

Its currency-neutral revenues fell 1% in Q4, reflecting a negative impact of about €600 million related to the termination of the Yeezy partnership. Moreover, the sharp revenue decline of about 50% in Greater China due to inventory issues remained a drag. 

Besides for weak sales, pressure on margins from higher supply chain costs and increased promotional activity to clear inventory dragged its bottom line lower.

Adidas posted a loss of €2.67 a share, which compared unfavorably with the Street’s projection of a loss of €2.64. 

Adidas expects its constant-currency revenues to decline by a high-single-digit rate in 2023. Management expects persisting macroeconomic challenges in its key markets, including Europe, North America, and Greater China, to impact its top line adversely. 

In addition to macro and geopolitical headwinds, the company’s move to clear inventories could negatively impact its revenues. Also, Adidas’ outlook includes a revenue loss of €1.2 billion from potentially not selling the existing Yeezy inventory. A decline in sales and cost headwinds will likely pressure its bottom line in 2023. 

What’s the Prediction for Adidas Stock?

Given the ongoing headwinds, analysts are sidelined on Adidas stock. It has received six Buy, nine Hold, and three Sell recommendations for a Hold consensus rating. Analysts’ average price target of €143.67 shows a slight downside of close to 1%. 

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