Bjorn Gulden’s warning that the Yeezy shoe debacle could lead to a €700 million ($750 million) loss at Adidas AG won’t have come as a total surprise to investors familiar with the CEO’s track record as a turnaround artist at other struggling companies.
(Bloomberg) — Bjorn Gulden’s warning that the Yeezy shoe debacle could lead to a €700 million ($750 million) loss at Adidas AG won’t have come as a total surprise to investors familiar with the CEO’s track record as a turnaround artist at other struggling companies.
When he took the reins of Pandora A/S a decade ago, he was quick to stress how many challenges the Danish jewelry maker confronted. Two years later, as incoming CEO of Puma SE, he said the turnaround wouldn’t be a “quick fix” as the German sports brand was “on its knees” with retailers trying to win back shelf space from rivals.
On Thursday night, though, Gulden delivered probably the gloomiest welcome message of his career, saying that Adidas — where the Norwegian took over as CEO in January — may be headed for its first annual loss in more than 30 years.
“We are currently not performing the way we should,” Gulden said. “I am convinced that over time we will make Adidas shine again. But we need some time.”
Gulden’s salvo came as a reality check to traders who had pushed up Adidas shares 66% since it became clear he would take over as CEO back in November. Sales will probably sink at a high-single-digit rate in 2023, and the company has a €1.2 billion pile of unsold Yeezy merchandise, Adidas said.
Investors were bracing for a cautious outlook from Gulden, but nothing of that magnitude. The shares plunged as much as 13% Friday as investors took stock of the long road ahead. But for some longtime watchers of Gulden, there was a silver lining in the message. It was vintage Gulden, setting expectations extremely low to give him time to eventually start ticking off steady victories, according to Thomas Joekel, a fund manager at Union Investment in Frankfurt, one of the top Adidas shareholders.
“With this action, Gulden gives the staff of Adidas all the time in 2023 to reorganize, refocus, to be creative and then to perform much better in the years to come,” Joekel said.
Adidas has plenty of challenges. It’s struggling to win back customers in China, once its biggest growth market, where consumers are quickly becoming loyal buyers of Chinese brands. Meanwhile, Adidas’s Russian unit has completely vanished due to the war in Ukraine, a particular blow since Adidas has historically clobbered Nike in the country.
Then there is Adidas’s internal turmoil, including recurring employee protests in recent years, especially in the US, regarding the company’s handling of diversity matters. That discussion boiled over this past fall, when Adidas hesitated for several weeks before cutting ties with the rapper and designer Ye, formerly known as Kanye West, who unleashed a string of hateful and antisemitic rhetoric.
Adidas is still trying to figure out what to do with the unsold Yeezy goods, which may need to be written off completely. That’s exacerbating what had already been a huge inventory problem for the apparel maker.
Marathon Running
The “horrible outlook” includes cuts to sales and earnings that are “much deeper than anybody projected,” Volker Bosse, an analyst at Baader Bank, said in a note. “This will be a marathon and not a sprint.”
But above all else, Gulden’s biggest task is breathing fresh life into the Adidas brand, which has struggled to come up with buzzy sneakers and apparel in recent years under former CEO Kasper Rorsted.
Last spring, while Gulden was still head of crosstown rival Puma, he recalled his strategy for winning over employees early in his tenure. “You are not always at the top of the league, and you are not always in a company that performs well,” Gulden recalled saying. “But if you can see the potential, you need to make sure your teammates see it as well. You need to set goals for people to reach, so they get the feeling of success.”
In nine years at Puma, Gulden more than doubled the company’s annual sales, in part by tightening its focus on sports. He signed high-profile soccer teams including Manchester City and Arsenal, reintroduced a line of performance running shoes and embraced basketball again in the US, also helped by a new partnership with the rapper Jay-Z, who created plenty of buzz flying around the world on Puma’s private jet.
There’s a decent chance that the worst news is over at Adidas, which issued four profit warnings in 2022, Union Investment’s Joekel said.
Gulden is relying on his old playbook in other ways at Adidas. The new CEO laid out priorities Thursday that included making sure his company is a fun place to work and improving relations with retail partners. While the company is relying, in part, on a partnership with Beyoncé to help make up for the Yeezy shortfall, it’s also moving ahead with new collaborations like a new sportswear line with actress Jenna Ortega announced last week.
Back in November, after Adidas’s shares had surged on the news of Gulden’s plans, he stepped out for a morning jog and posted a selfie to Instagram. He thanked his well-wishers and offered a bit of chin-up optimism to those who were disappointed by his company change. “Life is too short to worry!” he wrote. “Live when you can!”
In early January, during his first townhall meeting with Adidas staff, Gulden set about brightening the atmosphere of the company with levity and optimism, according to people familiar with the matter.
At one point, an employee asked Gulden what he had done with all of his Puma sneakers and clothing. He replied he gave it all away to charity. Before taking the next question, he corrected himself. There was one article of Puma clothing that he still used, he said — in fact, right at that very moment.
His underwear.
It was just the right quip to win over an audience of Adidas employees after enduring several years of crises.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.