Not so long ago, the world of the three stripes was still in order. Adidas CEO Kasper Rorsted was the celebrated man at the helm of the Herzogenaurach-based sporting goods manufacturer. China was considered the promised land where brand-conscious young consumers snatched its products with the famous three stripes out of the company's hands.

In addition, the Dax Group trumped with a cooperation with the American rapper Kanye West and the joint brand Yeezy in the lifestyle sector. These times have changed – and not for the better for Adidas. The media are discussing how it can be that the former Henkel boss and now also former Adidas CEO Kasper Rorsted can go home with a severance package worth almost 16 million euros, although the company's development at Adidas has left much to be desired in the end.

The new boss has a lot to clean up

How times have changed is shown by the fact that the musician Kanye West has changed his name and now calls himself "Ye". For Adidas, however, its anti-Semitic omissions were much more drastic, which prompted the company to end the cooperation. Now it's just a question of whether the already produced "Yeezy" goods are still sold.

In the worst case, the sports group is threatened with an operating result of 700 million euros in this financial year. According to the company's forecast, a non-sale of goods should have a significant impact on sales losses of EUR 1.2 billion and a negative effect on operating profit of around EUR 500 million. A potential write-down of Yeezy's inventory will have an additional negative impact of €500 million, while a strategic review is estimated at around €200 million.

In view of the Yeezy issue and the difficult market environment due to macroeconomic problems and geopolitical tensions, Adidas expects currency-neutral sales to decline by a high single-digit percentage in 2023. However, the Yeezy case is not even the biggest construction site that the new Adidas boss and former Puma CEO Bjørn Gulden has to tackle. Political conflicts and a concomitant aversion in politics and the media towards Western fashion and clothing brands have made the once highly praised China business of the group difficult even before Corona. In 2022, the decline in sales in China was 36 percent.

The fact that the Beijing government moved away from its "zero Covid" policy at the end of last year and that consumption was supposed to be boosted in this way is an important building block for Adidas to provide more positive news in China again.

When will the return to the core business come?

For his part, the new boss Gulden has now appealed for patience among shareholders and investors. Thus, 2023 should be "a transitional year" to lay the foundation for the following years 2024 and 2025. Inventories would have to be reduced and rebates reduced. "In 2024, we will be able to start building a profitable business again. Adidas has everything it needs to be successful," says Gulden.

He is likely to prescribe Adidas a return to the traditional core business. Similar to the domestic competitor Puma, the focus is likely to be shifted somewhat away from the lifestyle business (again) to sports. This had led Puma on the right path. Another pillar of Gulden's success at Puma was its proximity to wholesale, while American industry leaders Nike and Adidas have been very concerned in recent years with expanding their direct-to-consumer business.

What does an investor do with the topic of Adidas? Anyone who has had the share certificates in their portfolio for some time could do well with the motto of former Adidas advertising icon Franz Beckenbauer "look at me, then see me scho". Anyone who invested 10,000 euros in Adidas securities ten years ago is now looking at a position that is still just under 18,000 euros.

In addition, there are the dividend distributions, in which the company has presented itself as a reliable payer until 2019. At 70 cents per share, however, the dividend for 2022 is now significantly lower than in the previous year and also than analysts had expected on average. For comparison: For 2021, Adidas had distributed 3.30 euros. But it's not just the dividend that has left much to be desired recently. Investors who have relied on Adidas over the past five years have so far been left empty-handed when it comes to share price performance. 10,000 euros became 24,5 euros in the past 400 months due to the weak price development.

Meanwhile, JP Morgan believes that Adidas can quickly be successful again. An analysis even refers to the "Gulden Days", and Gulden's statements on profitability were well received. According to JP Morgan, this is likely to be stimulated by the fact that investments for 2023 should be lower than estimated by the analysis house. Therefore, the "Overweight" assessment and the price target of EUR 162.00 were confirmed for Adidas shares.

Despite all the optimism, looking at Adidas' competitors Puma and Nike in terms of their historical share price developments and recent balance sheets could well make an investor think about other options. Just because you personally like shoes or clothes with the three stripes, the choice in the depot does not have to be identical.