Shares in Adidas AG (ETR:ADSGN) moved higher on Tuesday after analysts at Berenberg upgraded their rating of the German sportswear group to buy from hold, saying the company can become an “exciting multi-year turnaround story.”
Earlier this month, the Germany-based business warned of a steep potential loss in 2023 due to its decision to break ties with Ye over a series of controversial comments made by the rapper.
In a statement, Adidas flagged 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 = $1.0612) and revenue by around €1.2B in its current financial year. Meanwhile, 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 that 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.”
But analysts at Berenberg argued that this guidance, issued under new Chief Executive Officer Bjørn Gulden, appears to be a “kitchen sink” exercise that gives the firm a clean base to operate from heading into a major sports event year in 2024. The 2024 Summer Olympics in Paris, as well as the UEFA Euro soccer championship in Germany, are among the key events on the sporting calendar next year.
The Berenberg analysts added that it expects Adidas to have the right strategy, investment and execution in 2023.