Adidas Downgraded On Credit Risks As Footwear Industry 'Resets'

S&P and Moody's, two leading credit agencies, have lowered their rating of Adidas. The actions follow the company's recent announcement that unloading its mountains of Yeezy inventory could lead to a loss of up to $750 million.

That much-worse-than-expected forecast, combined with sluggish consumer demand and the impact of COVID closures in China, has led S&P to predict an annual sales decline of between 7% and 9% for Adidas.

"The outlook remains negative, reflecting the limited visibility on the group's strategic initiatives to mitigate the negative impact due to the termination of the Yeezy business, regain market share in China, and manage the excess of inventories, which could hinder its ability to reduce its leverage," it says in its report.

It says it may lower its rating further if, for example, "new management cannot smoothly execute turnaround initiatives and manage record high inventory."

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Adidas isn't the only company facing a somber shoe outlook. The NPD Group expects footwear sales to rise just 1% in the next two years. The Port Washington, New York-based market research company says the slower growth comes "as lines continue to blur across fashion, leisure, and performance."

"This will be a reset year for the footwear industry," writes Beth Goldstein, NPD's footwear and accessories analyst, in its forecast. "After three years of ups and downs, we can expect sales and price trends will level out as consumers settle into their now-familiar lifestyles and make strategic choices about their must-haves versus their nice-to-haves as they continue to grapple with macroeconomic pressures."

The No. 1 reason consumers will go shoe-shopping this year is to find a pair that works for "casual everyday use."

NPD says that sport leisure shoes created the highest sales last year. But fashion footwear drove the most growth, as consumers bought new footwear for work and events. Those sales will level off quickly as shoe shopping normalizes.

It predicts that people will rate casual footwear, sneakers, and athletic footwear as essentials while dress footwear, outdoor shoes and slippers become less important.

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