{"id":8672,"date":"2023-02-23T07:00:45","date_gmt":"2023-02-23T07:00:45","guid":{"rendered":"https:\/\/dmsretail.com\/RetailNews\/sp-moodys-downgrade-adidas-following-low-guidance\/"},"modified":"2023-02-23T07:00:45","modified_gmt":"2023-02-23T07:00:45","slug":"sp-moodys-downgrade-adidas-following-low-guidance","status":"publish","type":"post","link":"https:\/\/dmsretail.com\/RetailNews\/sp-moodys-downgrade-adidas-following-low-guidance\/","title":{"rendered":"S&#038;P, Moody\u2019s downgrade Adidas following low guidance"},"content":{"rendered":"<p> <p><a href=\"https:\/\/dmsretail.com\/online-workshops-list\/\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-496\" src=\"https:\/\/dmsretail.com\/RetailNews\/wp-content\/uploads\/2022\/05\/RETAIL-ONLINE-TRAINING-728-X-90.png\" alt=\"Retail Online Training\" width=\"729\" height=\"91\" srcset=\"https:\/\/dmsretail.com\/RetailNews\/wp-content\/uploads\/2022\/05\/RETAIL-ONLINE-TRAINING-728-X-90.png 729w, https:\/\/dmsretail.com\/RetailNews\/wp-content\/uploads\/2022\/05\/RETAIL-ONLINE-TRAINING-728-X-90-300x37.png 300w\" sizes=\"auto, (max-width: 729px) 100vw, 729px\" \/><\/a><\/p><br \/>\n<\/p>\n<div>\n<div class=\"text-to-speech\">\n    <button class=\"text-to-speech__button button\"><br \/>\n            <img decoding=\"async\" class=\"text-to-speech__button__icon\" src=\"https:\/\/www.retaildive.com\/static\/images\/audio_icon.svg?482016190122\" alt=\"\"\/><br \/>\n            Listen to the article<br \/>\n            <span class=\"text-to-speech__button__audio-length\">4 min<\/span><br \/>\n    <\/button><\/p>\n<div class=\"text-to-speech__controls\">\n        <audio controls=\"\" class=\"js-text-to-speech\" preload=\"none\"><source src=\"http:\/\/res.cloudinary.com\/dmgi9movl\/video\/upload\/q_1\/v1677089117\/news\/text_to_speech\/sp-moodys-downgrade-adidas-following-low-guidance_udrzqd.wav\" type=\"audio\/mp3\"><\/source><\/audio><\/p>\n<div class=\"text-to-speech__controls__text\">\n            This audio is auto-generated. Please let us know if you have feedback.\n        <\/div>\n<\/p><\/div>\n<\/div>\n<p><span><span><span><strong><span><span>Dive Brief:<\/span><\/span><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li><span><span><span><span><span><span>S&amp;P Global Ratings on Tuesday downgraded Adidas\u2019 debt ratings to A-\/A-2 from A+\/A-1, saying that \u201ca multitude of business challenges,\u201d that include terminating its partnership with Kanye West and contracting consumer demand will affect the company\u2019s financial performance. S&amp;P Global Ratings expects Adidas&#8217; credit metrics to &#8220;significantly deteriorate&#8221; due to one-off costs and operational challenges.<\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<li><span><span><span><span><span><span>Moody\u2019s earlier this month also downgraded Adidas from A2 to A3 and said its outlook remains negative. Moody\u2019s said the company\u2019s \u201cvery weak earnings guidance\u201d raises concerns about Adidas\u2019 risk management and underlying business strength.<\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<li><span><span><span><span><span><span>Adidas this month issued low guidance for 2023, saying an inability to sell its Yeezy-branded inventory would lower the company\u2019s revenues by 1.2 billion euros ($1.28 billion at the time) and drop operating profit by 500 million euros.<\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<\/ul>\n<h3><span><span><span><strong><span><span>Dive Insight:<\/span><\/span><\/strong><\/span><\/span><\/span><\/h3>\n<p><span><span><span><span><span><span>Although the company is not in serious financial distress, S&amp;P Global Ratings\u2019 decision to downgrade Adidas is another signal that the apparel retailer\u2019s financial performance is currently off track as a result of several issues.\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><span><span><span><span><span><span>Due to higher-than-anticipated inventory levels, S&amp;P said Adidas is likely to experience negative free operating cash flow and \u201ca material increase in leverage.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<p><span><span><span><span><span><span>According to S&amp;P, sales of the West-branded shoes were 5% of Adidas\u2019 total sales in 2021, and the company anticipated the products would represent 7% of sales in 2022. But the company ended its partnership with the celebrity in October after the designer repeatedly made offensive and antisemitic comments. <\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<p><span><span><span><span><span><span>\u201cEnding the Yeezy partnership with Mr. West will have a stronger-than-expected hit on the group\u2019s operating performance in 2023,\u201d S&amp;P analysts Salvio Cascarino and Rocco Semerano said in the report.\u00a0Adidas is also facing competitive pressure in China, which generated 15.5% of the company&#8217;s total sales in the nine months ending Sept. 30, 2022, and experiencing contracting consumer demand in Western countries, S&amp;P said.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<p><span><span><span><span><span><span>The S&amp;P analysts said the negative outlook reflects volatility and limited visibility on what strategic initiatives Adidas will implement to mitigate the impacts of the terminated partnership, regain market share in China, and manage excess inventory from lower consumer demand.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<p><span><span><span><span><span><span>Together, these factors mean \u201coperating performance could remain under pressure for a prolonged period.\u201d That would hinder Adidas&#8217; capacity to generate an annual free operating cash flow of at least 1 billion euros per year and limit its ability to achieve a better debt-to-EBITDA ratio.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<p><span><span><span><span><span><span>Moody\u2019s this month also downgraded Adidas, citing the company\u2019s lowered guidance. Moody\u2019s a<\/span><\/span><\/span><\/span><\/span><\/span><span><span><span><span><span><span>nalysts said the German-based apparel maker \u201cwas already fairly weakly positioned in the A2 rating category, with a negative outlook since November 2022. While Moody&#8217;s expected a weak operating performance in the next 12-18 months, the actual guidance is well below Moody&#8217;s expectations.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<p><span><span><span><span><span><span>Adidas may face another downgrade, Moody\u2019s cautioned, \u201cif the company&#8217;s operational and financial performance were to further deteriorate or take much longer to improve.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<p><span><span><span><span><span><span>Despite the challenges, Moody\u2019s said Adidas maintains \u201cconservative financial policies\u201d and that its net leverage should return to a more healthy position toward the end of 2024. S&amp;P\u2019s analysts shared a similar sentiment, saying Adidas has the capacity to turn around its financial position by 2025.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<p><span><span><span><span><span><span>Adidas CEO Bjorn Gulden acknowledged the company\u2019s challenges. He said earlier this month that 2023 will be a transition year.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<\/p><\/div>\n<p><p><a href=\"https:\/\/dmsretail.com\/online-workshops-list\/\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-496\" src=\"https:\/\/dmsretail.com\/RetailNews\/wp-content\/uploads\/2022\/05\/RETAIL-ONLINE-TRAINING-728-X-90.png\" alt=\"Retail Online Training\" width=\"729\" height=\"91\" srcset=\"https:\/\/dmsretail.com\/RetailNews\/wp-content\/uploads\/2022\/05\/RETAIL-ONLINE-TRAINING-728-X-90.png 729w, https:\/\/dmsretail.com\/RetailNews\/wp-content\/uploads\/2022\/05\/RETAIL-ONLINE-TRAINING-728-X-90-300x37.png 300w\" sizes=\"auto, (max-width: 729px) 100vw, 729px\" \/><\/a><\/p><br \/><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Listen to the article 4 min This audio is auto-generated. Please let us know if you have feedback. Dive Brief: S&amp;P Global Ratings on Tuesday [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":8673,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":["post-8672","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-technology"],"_links":{"self":[{"href":"https:\/\/dmsretail.com\/RetailNews\/wp-json\/wp\/v2\/posts\/8672","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dmsretail.com\/RetailNews\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dmsretail.com\/RetailNews\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dmsretail.com\/RetailNews\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/dmsretail.com\/RetailNews\/wp-json\/wp\/v2\/comments?post=8672"}],"version-history":[{"count":0,"href":"https:\/\/dmsretail.com\/RetailNews\/wp-json\/wp\/v2\/posts\/8672\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/dmsretail.com\/RetailNews\/wp-json\/wp\/v2\/media\/8673"}],"wp:attachment":[{"href":"https:\/\/dmsretail.com\/RetailNews\/wp-json\/wp\/v2\/media?parent=8672"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dmsretail.com\/RetailNews\/wp-json\/wp\/v2\/categories?post=8672"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dmsretail.com\/RetailNews\/wp-json\/wp\/v2\/tags?post=8672"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}