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The company needs to refocus on its core business and faces a ‘transition’ year before returning to profit in 2024, and will return to its sports-based roots, Gulden said. Image Credit: REUTERS

Germany: Adidas will slash its 2022 dividend, the sporstwear maker said on Wednesday, warning a split with rapper and fashion designer Kanye West could push it to its first annual loss in three decades this year.

Chief Executive Bjorn Gulden, who took the reins on January 1, pledged to rebuild the bruised brand after dealing with the fallout from ending Adidas’ partnership with West, which yielded the lucrative Yeezy sneaker line.

Adidas has not said how much the Yeezy brand has made since its first deal with West at the end of 2013, but analysts estimate Yeezy accounted for as much as 7 per cent of total sales in its best years.

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“We will bring (Adidas) back to be the best sports brand in the world once again,” said Gulden.

The company will recommend a dividend of 0.70 euros ($0.7374) per share, down from 3.30 euros a share in 2021, at a May 11 annual general meeting, it said.

Adidas shares fell 1.7 per cent at the open. The shares have gained around 40 per cent since the company ended its deal with West on October 25 last year, but the stock still has a long way to go to recover from a difficult 2021 and 2022.

Adidas said it is still deciding what to do with its stock of unsold Yeezy footwear. The split cost it 600 million euros ($632 million) in sales in the fourth quarter of 2022, and Yeezy shoes would have brought in an estimated $1.2 billion in revenue this year.

Less discounting

Overall, Gulden said Adidas needs to reduce inventory levels and do less discounting. Inventories came in at just under 6 billion euros at the end of December, up 49 per cent from the previous year.

The company forecast 2023 underlying operating profit at roughly break-even when taking into account the $500 million loss from not selling existing Yeezy stock.

If Adidas decides not to repurpose the products, it will write the inventory off altogether, denting profit by another $500 million. That, along with $200 million of one-off costs, would bring Adidas to a $700 million loss this year.

RBC analysts said they see the full write-down as the most likely scenario.

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Adidas said it struggled with stock takebacks and a difficult market environment in China, driving revenue down 36 per cent for the year compared to 2021.

In the fourth quarter of last year, currency-neutral revenue declined by 1 per cent, taking into account a 600-million-euro loss after it stopped selling Yeezy shoes. Greater China revenue also weighed, down 50 per cent compared to the fourth quarter of 2021.

The end of COVID-19 lockdowns in China is expected to drive sales up across the major retail brands for whom China is a key market, but for Adidas that boost will likely be wiped out by the impact of the Yeezy split, making it hard for it to compete against rivals Nike and Puma.