Adidas AG is a German multinational corporation that designs and manufactures athletic and casual footwear, apparel, and accessories. The company was founded in 1949 by Adolf Dassler and is headquartered in Herzogenaurach, Germany. Adidas is one of the world’s largest sportswear manufacturers, and its products are sold in over 160 countries.
In this case study, we will examine Adidas’s financial performance, including its revenue, profits, and key financial ratios. We will also analyze the company’s financial statements and discuss its capital structure, dividend policy, and strategic initiatives.
Revenue and Profits:
Adidas reported revenue of €23.1 billion in 2020, a decrease of 16% compared to the previous year. The decline was attributed to the impact of the COVID-19 pandemic, which led to store closures and reduced consumer demand. However, the company’s e-commerce sales increased by 53% in 2020, indicating that consumers were shifting towards online shopping.
Adidas’s net income in 2020 was €431 million, a significant decrease from the €2.2 billion reported in 2019. The decline in profits was due to the pandemic-related sales decline and increased expenses related to store closures and supply chain disruptions. However, the company’s management implemented cost-cutting measures to mitigate the impact of the pandemic on its profitability.
Adidas’s financial ratios provide insight into the company’s financial health and performance. The following are some of the key ratios:
Gross Margin: Adidas’s gross margin in 2020 was 51.5%, which was lower than the 53.5% reported in 2019. The decrease in gross margin was due to increased discounting and promotional activity to attract consumers during the pandemic.
Return on Equity (ROE): Adidas’s ROE in 2020 was 5.5%, which was lower than the 26.5% reported in 2019. The decrease in ROE was due to the decline in profitability caused by the pandemic.
Debt to Equity Ratio: Adidas’s debt to equity ratio in 2020 was 0.4, which was higher than the 0.3 reported in 2019. The increase in the debt to equity ratio was due to the company’s decision to borrow more funds to navigate the pandemic.
Adidas’s capital structure consists of debt and equity financing. The company has a strong credit rating, which enables it to borrow funds at favorable interest rates. As of December 31, 2020, Adidas had a net debt of €1.4 billion, which was higher than the €17 million reported in 2019. The increase in net debt was due to the company’s decision to borrow more funds to navigate the pandemic.
Adidas has a dividend policy of paying out between 30% and 50% of its net income to shareholders. In 2020, the company paid a dividend of €3.00 per share, which was lower than the €3.85 paid in 2019. The reduction in the dividend was due to the decline in profitability caused by the pandemic.
Adidas has implemented several strategic initiatives to navigate the pandemic and position itself for future growth. These include:
Digital Transformation: Adidas has accelerated its digital transformation to meet the growing demand for e-commerce. The company has invested in its online platforms and launched new digital initiatives such as virtual try-on tools and personalized recommendations.
Sustainability: Adidas has made sustainability a key part of its strategy and has set ambitious targets to reduce its environmental impact. The company has pledged to use only recycled polyester in its products by 2024 and to achieve carbon neutrality by 2050.
Product Innovation: Adidas has continued to innovate its product offerings to meet changing consumer preferences. The company has launched new products such as Primeblue, a collection of sportswear made from recycled ocean plastics.
Adidas’s financial performance in 2020 was impacted by the COVID-19 pandemic, which led to a decline in revenue and profits. However, the company’s management implemented cost-cutting measures and accelerated its digital transformation to mitigate the impact of the pandemic. Adidas has a strong capital structure and dividend policy, and is committed to sustainability and product innovation. As the global economy recovers from the pandemic, Adidas is well-positioned to capitalize on growing consumer demand for sportswear and athletic apparel.