Adidas has once again adjusted its outlook for 2022 following its split from rapper Ye, also known as Kanye West. The company is evaluating the impact of this separation, leading to a revised forecast. Despite this, investors are optimistic about the future as Bjorn Gulden, the CEO of rival brand Puma, is set to take over as Adidas’ chief executive. Gulden will assume his new role on January 1, replacing current CEO Kasper Rorsted, who will be stepping down earlier than planned due to the mounting issues within the company.

The adjustment in expectations reflects the challenges faced by Adidas. The company now expects its currency-neutral revenue to grow at a low-single-digit rate in 2022, a downgrade from the earlier projection of a mid-single-digit growth rate. Furthermore, the projected operating margin has been revised down from 4% to approximately 2.5%.

Despite these adjustments, Adidas’ shares initially dropped but later experienced a significant increase of up to 4.6%. This surge in investor confidence can be attributed to the anticipation of Bjorn Gulden taking over as the new CEO. Analysts believe that Gulden’s appointment is positive news for the company, especially as concerns regarding contractual obligations with Puma have been resolved.

However, Gulden will face several immediate challenges when he starts his role at Adidas. Credit Suisse analysts have identified high inventory levels, declining brand momentum, tough competition in China, long lead-times in sporting goods, and the loss of Ye’s Yeezy brand as crucial issues that require attention. During the third quarter, Adidas reported a 27% decline in cross-company revenue from the Chinese market due to ongoing Covid-related restrictions.

The company has also revised its net income from continuing operations for the year. Following the termination of the partnership with Ye, Adidas now expects a 50% reduction in annual earnings. The initial estimate for net income from continuing operations of approximately €66 million has been revised down by two-thirds. The termination of the partnership will result in one-off costs of almost €300 million, mainly associated with Adidas’ exit from the Russian market and negative tax effects linked to the split from Ye. However, the company anticipates offsetting these costs with a positive tax effect of similar magnitude in the fourth quarter.

Despite the challenges faced and the revised outlook for 2022, investors remain hopeful due to the upcoming arrival of Bjorn Gulden, the new CEO from Puma. Gulden’s appointment brings anticipation for a fresh era of strength and resilience for the Adidas brand. It is crucial for Gulden to address the pressing issues faced by the company and regain momentum in the competitive sportswear market.

Useful links:
Adidas Group Announces New CEO
Puma’s CEO Jochen Zeitz Passes on Position to Bjorn Gulden