The position of chief executive officer at Adidas AG will only get harder for the incoming leader. In 2022, the company issued a second earnings warning. All the gains made by the stock under exiting CEO Rorsted have been eroded. On October 20, 2022, the company issued a warning about the mounting stock of unsold items due to declining demand in Chinese and Western markets. The stock of the German sportswear manufacturer dropped by as much as 10% as a result.
Under departing CEO Kasper Rorsted, problems are worsening, including a PR issue involving a partnership with rapper and fashion designer Kanye West. The person who succeeds Rorsted as CEO will need to develop popular products because the Yeezy line's future is uncertain. Adidas’s stock has already erased all the gains achieved during Rorsted's six-year leadership, giving the German business a market value that is around one-sixth that of its US competitor, Nike Inc.
The worsening prognosis, which is Adidas's second profit warning in three months, is due to a decline in Greater China's shop traffic trends and a slowdown in demand in Western countries since September 2022, according to Adidas. The company reported that there was a significant increase in its total revenue, but a significant decline in net profit in Q2 2022 over that in Q1 2022.
This will probably result in excess inventory that will need to be marked down. The total inventory increased in the second quarter of 2022 in comparison to that in the first quarter of 2022, according to GlobalData.
Adidas had warned in July 2022 that China was weak. The country was previously the brand's main contributor to growth, but boycott by consumers and the COVID-19 restrictions affected sales. Soaring inflation in the Western markets reduced consumer spending power. According to Adidas, full-year revenue will increase at a mid-single-digit rather than a mid- to high-single-digit. In the unexpected update, the German company lowered its predictions for the operating margin in 2022 from 7% to 4%.
Adidas is still most likely in the early stages of decreasing its earnings projections. The company’s financial goals through 2025 could be abandoned by Rorsted's successor due to discount sales to clear inventory. Backlogs of inventory have been a burden for the entire sector. After an oversupply of unsold goods reduced the profitability of the US sportswear giant in September 2022, Nike’s share prices fell.
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