Adidas: Yeezy come, Yeezy go, Bjørn leader clears up the mess

Adidas’s new chief executive, Bjørn Gulden, has set himself a lofty goal. He wants to make the brand, tarnished by its association with disgraced rapper Kanye West, “the best sports brand in the world once again”.

He also needs to rebuild the German company’s reputation with investors. The market has been willing to give Gulden — who comes from rival Puma with a strong record — the benefit of the doubt.

His first job is to sort out the aftermath of the partnership with West, now known as Ye, which accounted for about a third of operating profits. This includes figuring out what to do with €1.2bn of remaining Yeezy stock. Adidas is disinclined to burn the shoes or give them away. Both options would entail a €500mn write-off. Instead, Gulden has talked about selling the trainers and donating the profits to charity, which might enable Adidas to recoup some of the cost.

Gulden’s second job is even harder: turning the rest of Adidas around.

The new boss is hoping for a return to double-digit sales growth and ebit margins. But this will require a revitalisation of the underlying brand, which has languished. It has produced low single-digit sales growth in the past five years, according to Adam Cochrane, analyst at Deutsche Bank Research.

Backing out Yeezy’s operating profit in 2021 suggests Adidas is starting from margins in mid-single digits. The current year should be one of transition. Dispiritingly, guidance points to negative sales growth as the company pushes inventory out of the door.

A lot of what Gulden says makes sense. Adidas should be motivating staff better. The €15.9mn golden parachute that former chief Kasper Rørsted has secured at a time when other executives are getting no bonus hardly helps. And turnrounds do, as Gulden points out, take time.

The shares have already priced in most of the hope, trading on 34 times earnings in 2024, according to S&P Capital IQ. Adidas will have little upside until the Yeezy debacle is well behind it.