Bernstein: Adidas will "struggle to fix its mess this year"

By Scott Kanowsky 

Investing.com -- Adidas AG (ETR:ADSGN) (OTC:ADDYY) faces major short-term concerns in 2023, including issues related to its dispute with rapper Ye and the return of Chinese demand after the lifting of long-standing COVID-19 restrictions, according to analysts at Bernstein.

In a note to clients, the analysts said the German sportswear group is in a year of "transition," adding that new chief executive officer Bjørn Gulden's annual targets have "wip[ed] out any hope of growth, profits or buybacks."

"We expect Adidas to struggle to fix its mess this year, with progress perhaps moving slower than bulls are looking for," the analysts noted.

They argued that mishaps around product launches have hurt the brand, saying these problems must be resolved to make the business more "nimble and reactive."

Earlier this week, Adidas reiterated a warning issued in February that if it decides not to repurpose any of its Yeezy branded products going forward, the remaining unsold inventory will be written off, lowering operating profit by €500 million (€1 = $1.0568) and revenue by around €1.2 billion in its current financial year.

Meanwhile, the firm said it expects to be hit by one-off costs of up to €200M as part of a wider review of its operations.

Adidas subsequently predicted it could now report an annual operating loss of €700M, while currency-neutral sales are seen declining at a high-single-digit rate this year. On an underlying basis, operating profit is forecast to be "around the break-even level."

The Bernstein analysts also flagged Adidas' performance in China, warning that excess inventory will likely lead to the firm missing an expected post-COVID rebound in retail demand in the country.

Beyond the next 18 months, the Bernstein analysts said they liked Adidas' turnaround strategy, although this recovery "won't be easy."