March Earnings: Perfect Diary Falls Short While Adidas Deals With Ye Breakup

More full-year 2022 results are trickling in, and companies have one thing in common: Greater China continues to be a sore spot. High inventory, closed stores, and soft demand have put a dent on bottom lines. That said, with the country now open, international and local players are eager to capitalize on the recovery momentum and refocus their energy on the market. But that’s easier said than done. Adidas, for one, is still grappling with the loss of Yeezy. If it decides not to repurpose any of the existing product, this could lower the company’s operating profit by €500 million and cost up to €200 million in additional one-off costs this year. Meanwhile, Yatsen Holdings is trying to turn around its biggest brand, Perfect Diary, as China’s cosmetics consumption remains sluggish. Can these companies utilize 2023 to lay the groundwork for future profitability? PVH Corp proves new strategy is working PVH Corp shares were soaring as much as 20 percent on March 28 after the company posted better-than-expected earnings. The American clothing company, which owns Tommy Hilfiger and Calvin Klein, reported that fourth-quarter revenue was up 2 percent year-over-year to $2.48 billion, higher than the guidance of a 4 percent decrease, while full-year 2022 revenue fell just 1 percent to $9 billion, better than the 3 percent decrease expected. The results are a win for CEO Stefan Larsson, who shared his new plans for the company last April. “Our disciplined execution of the PVH+ Plan, our multi-year, brand-focused, direct-to-consumer and digitally-led strategy enabled us to compete to win despite the challenging macro situation,” he said in a statement. As part of this strategy, PVH drove product elevation at Tommy Hilger and built out Calvin Klein’s product categories. It also increased brand awareness in China by leveraging the Lunar New Year, investing in Douyin livestreaming, and collaborating with Tmall Innovation Center to offer more customized styles. Entering 2023 with significant momentum, the group projects a revenue increase of 3-4 percent by unlocking the potential of these two flagship brands. Things are looking good so far too, with the Tommy Hilfiger x Shawn Mendes campaign well underway and the announcement of BTS’ Jungkook as the latest Calvin ambassador rocking social media. Adidas gets realistic about 2023 outlook “2023 will be a transition year to build the base for 2024 and 2025,” said CEO Bjørn Gulden, acknowledging what was a tough and disappointing fiscal year for the German sportswear brand. “We need to reduce inventories and lower discounts. We can then start to build a profitable business again in 2024.” In 2022, currency-neutral revenue at Adidas grew just 1 percent, impacted by the termination of the Yeezy partnership in October and significant inventory takebacks. By region, Latin America and North America managed to grow by double-digits, while Greater China revenue experienced a sharp 36 percent year-on-year decline in full-year revenue. However, Adidas has seen some positive developments in the first two months of 2023. “First of all, the Chinese people are out again, and they do sports from the first day,” Gulden noted on the earnings call in March. Adidas is also increasing its investments in the local sports scene, from sponsoring a marathon in Beijing to partnering with Chinese athletes like tennis player Wu Yibing, who became the highest-ranked Chinese player in tennis history in February. On this note, Gulden added that it is a “safer bet using celebrities from sports” than from fashion or music because of the Better Cotton Initiative issue, which saw Chinese stars cut ties with brands that renounced Xinjiang cotton. “There’s still no clarity if the celebrities from other areas are really going to go live on social media for brands like us.” Given various uncertainties in the China market, elevated recession risks in the West, and questions about what to do with the Yeezy inventory, the company expects 2023 revenue to decline at a high-single-digit rate. But the CEO vows, “We will bring [Adidas] back to be the best sports brand in the world once again.” Whether he can deliver remains to be seen. Yatsen reports tanking cosmetics sales due to soft demand Similarly, Yatsen Holdings struggled as China’s beauty industry remained challenged in 2022, calling it “a year of transformation.” Total net revenue for 2022 tumbled 36.5 percent to $537 million from the prior year. The colors cosmetics division, which includes Perfect Diary, Little Ondine and Pink bear, declined 56.9 percent year-over-year in sales in the fourth quarter, reflecting a “continued softness in market demand” and “intensified industry competition,” CEO Jinfeng Huang explained on the March earnings call. In fact, its biggest label, Perfect Diary, closed 128 offline stores in the year to cut costs, pivoting to Douyin for aggressive promotions instead. A bright spot? Skincare. In the fourth quarter, net revenue from skincare brands accounted for 46.9 percent of total net revenue in 2022, more than doubling from the prior year. This was driven by strong performances from the group’s clinical and premium brands, including Dr. Wu, Clinique, and Eve Lom, which jumped 73 percent year-on-year in combined net revenue. For the first quarter of 2023, the company expects net revenue to decline year-over-year by approximately 20-30 percent. Still, Yatsen is “cautiously optimistic” about the year, with plans to leverage skincare’s success as it attempts to turn around its biggest brand, Perfect Diary. The recent appointment of a new chief scientific officer should help with the rebound.

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March Earnings: Perfect Diary Falls Short While Adidas Deals With Ye Breakup