Q1 ended a little better than we had expected with flattish sales and a small operating profit of € 60 million. Sales growth excluding Yeezy was 9%. Great double-digit growth in Latin America and Asia-Pacific, and slight growth in EMEA
adidas CEO Bjørn Gulden:
“Q1 ended a little better than we had expected with flattish sales and a small operating profit of € 60 million. Sales growth excluding Yeezy was 9%. Great double-digit growth in Latin America and Asia-Pacific, and slight growth in EMEA despite Russia were in line with our plan. Total revenues in Greater China were still down 9%, but we achieved double-digit sell-out growth. This was better than expected and makes us optimistic for the rest of the year. The 20% sales decline in North America - down 5% excluding Yeezy - was in line with our conservative sell-in strategy due to the high levels of inventory and discounts in the market.
We are very happy to see our Performance categories continue to develop well and grow strongly. The decline in Lifestyle and the loss of Yeezy are of course hurting us. But also here we see some positive developments: The Terrace segment is doing very well in all markets and we have started to scale up volumes for our Samba, Gazelle and Campus franchises. Our partnership launches with Bad Bunny, Ronnie Fieg/Kith and Gucci have performed great. And the reaction from consumers and retailers to our Fear of God launch in April was incredible.
Inventories are still too high, but already € 300 million lower than at the beginning of the year. We continue to work hard to normalize our inventory levels during the year. This is crucial for us to be able to lower discount levels, increase our full price business and re-build brand heat again.
I have spent Q1 working on our product ranges, brainstormed about future innovations, talked to a great number of retailers about improving our cooperations, met suppliers to discuss future strategies, had many of our athletes visiting our campus, and of course started to work on simplifying and speeding up our processes. All of this will continue, and we still have a long way to go, but I am very happy with the progress we have made and what we have achieved so far.
I am extremely inspired by the huge energy and talent our people - the adidas family - have showcased during the short time I have been here. adidas has all the ingredients to be the best sports brand in the world, to grow strongly and to be a good profitable company. We just need some time. 2023 will be a bumpy year with disappointing numbers, where maximizing our short-term financial results is not our goal. It is a transition year to build a strong base for a better 2024 and a good 2025 and beyond.”
Currency-neutral revenues reach prior-year level
In the first quarter of 2023, currency-neutral revenues were flat versus the prior-year level. The top-line development in Q1 was impacted by significantly reduced sell-in to the wholesale channel as part of the company’s initiatives to reduce high inventory levels, particularly in North America and Greater China. In addition, the discontinuation of the Yeezy business weighed on the top-line development during the quarter, representing a drag of around € 400 million on the year-over-year comparison, mainly across the North America, Greater China and EMEA regions.
Despite this significant drag, footwear revenues grew 1% during the quarter, reflecting the strong momentum the adidas brand is enjoying in its Performance categories football, running, outdoor and tennis. Apparel sales declined 3% in the first quarter as this product division is particularly impacted by the high inventory levels in the marketplace and the company’s disciplined sell-in approach in response to it. Accessories grew 8% during the quarter driven by strong growth in football.
Lifestyle revenues were down during the quarter despite extraordinary demand for the company’s Samba, Gazelle and Campus franchises. These products are at the core of the current Terrace sneaker trend and have been benefiting strongly from it. While adidas continued to limit the supply at the beginning of the year, the company is slowly starting to scale its offering as the year progresses. Sales in the adidas Performance categories continued to grow at a strong double-digit rate. This growth reflects the successful launch of latest product innovations such as the jerseys for the FIFA Women’s World Cup 2023, the latest iteration of the iconic Predator football boot, the Adizero family of running products and the Free Hiker outdoor franchise.
In euro terms, the company’s revenues declined 1% to € 5.274 billion in the first quarter (2022: € 5.302 billion).
Wholesale revenues grow strongly in EMEA, Asia-Pacific and Latin America
From a channel perspective, currency-neutral sales in Wholesale grew 3% driven by strong growth in EMEA, Asia-Pacific and Latin America. Direct-to-consumer (DTC) revenues declined 7% versus the prior year. This development reflects the adverse Yeezy impact on the company’s e-commerce business (-23%) as the vast majority of this product used to be sold through adidas’ own online channel. At the same time, sales in the company’s own retail stores increased 11% in Q1.
Disciplined sell-in and Yeezy impact weigh on top-line in North America and Greater China
Currency-neutral sales in North America declined 20% during the quarter as the region is particularly affected by the discontinuation of the Yeezy business. In addition, significantly reduced sell-in to the Wholesale channel as a result of high inventory levels in the market weighed on the top-line development. While total revenues in Greater China declined 9% in Q1, the sell-out of the company’s products increased year-over-year, as reflected in double-digit growth across adidas’ own retail stores. Sales in EMEA grew 4%, driven by high-single-digit growth in Wholesale. Revenues in Asia-Pacific and Latin America both continued to increase at double-digit rates (Asia-Pacific +16%, Latin America +49%), driven by strong growth in both Wholesale and DTC.