By Geoffrey Smith
Investing.com -- Sportswear giant Adidas (OTC:ADDYY) is to part ways with its chief executive Kasper Rorsted next year, seeking a "restart" after a grueling pandemic that has cast serious doubts over its business model.
The group said the decision was the result of a mutual agreement, adding that Rorsted will stay in office until it appoints a successor.
Rorsted had overseen a big improvement in the German company's fortune in the three years before the pandemic, nearly tripling the company's share price by June 2021. However, the company has been badly caught out by its dependence on supply chains in Asia, which have been severely disrupted by factory closures in Indonesia and Vietnam, as well as shipping bottlenecks in the last two years.
Its problems have been compounded by a consumer boycott of its goods in China, which is now the world's biggest market for sportswear, according to some estimates. Adidas replaced its China head in March after a sales decline of over 15% in response to its efforts to distance itself from the cotton-producing region of Xinjiang. It expects full-year sales in the country to be down by over 10% from 2021 levels, in sharp contrast to vigorous sales growth in its other two key markets, North America and Europe.
The company's stock hit a five-year low last month after it said overall revenue was up only 4% in constant currencies in the last quarter, while net income fell 7% on the year, flattered by a 100 million euro tax effect. By 08:55 ET (12:55 GMT), Adidas stock was down 3.1% in Frankfurt, testing that low again.
Western governments have expressed repeated concern at the widespread use of internment camps and exploitative working conditions imposed on non-ethnic Chinese in the mainly-Muslim region. That has put western companies operating in China in a crossfire, unable to observe western standards on labor and sourcing without offending nationalist sentiment in what is frequently their biggest growth market.
While Adidas yielded to pressure from advocacy groups not to use Xinjiang cotton, local rivals such as Anta and Li-Ning have raised their domestic market share by broadcasting their use of it. Even after that, researchers in Germany established the presence of Xinjiang cotton in the products of Adidas as well as Puma (OTC:PMMAF) and Hugo Boss (OTC:BOSSY).
Before the scale of Adidas' pandemic problems had become clear, the board had extended Rorsted's contract until July 31, 2026.
The surprise announcement should be “positively received by the market,” according to RBC analysts, who noted increased speculation on a change at the top of the group in recent months and welcomed the prospect of an orderly transition. RBC argued that the company's next CEO should have “experience in product, marketing and/or merchandising from adjacent industries to sporting goods.”