ADDYY Adidas AG (QX)

   By Joshua Kirby 
 

Recovery in China and easing of inventories drove Adidas's better performance in the second quarter and sales of the popular but controversial Yeezy sneakers should further boost earnings this year as the company rebounds from its recent low points.

Greater China revenue rose 16% in the second quarter, marking a return to growth after successive quarters of decline in the vital market, Adidas said Thursday. In 2022, the world's second-largest sportswear group's sales slumped 36% in the region amid flagging brand momentum and pandemic lockdowns.

Adidas last month set out preliminary results showing a slight drop in sales in to 5.34 billion euros ($5.84 billion) in the April-June period, and an operating margin that improved from the previous quarter to 3.3%.

Inventories, which dogged Adidas's performance last year, rose only slightly in the second quarter, the company said. They stood at EUR5.54 billion, 6% higher on year adjusted for currency effects.

A better underlying performance was accompanied by the first sale, beginning in May, of some Yeezy sneakers, following a period of uncertainty over the fate of the remaining inventory. Adidas last year broke with Yeezy designer Kanye West--known as Ye--following a serious of public outbursts including antisemitic and racist comments.

Adidas has promised to donate some of the proceeds to charities including the Anti-Defamation League, which works to fight antisemitism, and the Philonise & Keeta Floyd Institute for Social Change, founded by George Floyd's brother Philonise.

Adidas confirmed that it now expects to book a narrower operating loss for the year, at EUR450 million, than the EUR700 million loss initially forecast. The result for the year should also be boosted by further Yeezy sales after a new drop this month. That boost has yet to be included in Adidas's forecasts for the year.

Stripping out the effects of Yeezy sales and associated costs, the group still expects to reach around break-even in its operating result. It then aims to return to operating profit from next year.

"We are using 2023 to clean inventories, work on future products, improve the way we work, build better partnerships, and lay the foundation for a better 2024," Chief Executive Bjorn Gulden said. Gulden took the reins of the company at the beginning of the year after a series of setbacks, including the Ye debacle and the sluggish performance in China, led to repeated profit warnings and a tumbling share price.

Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby

(END) Dow Jones Newswires

August 03, 2023 03:08 ET (07:08 GMT)

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