Adidas says loss may hit €700m if Yeezy shoes unsold

The sportswear group terminated its lucrative design partnership with Kanye West after he made a series of antisemitic and racist remarks

Adidas had become heavily dependent on the Yeezy line, which it dubbed one of the most successful in the industry’s history, and it took weeks of deliberations inside the company before it finally terminated the partnership.

Adidas said it may report an operating loss of €700m in 2023 as it deals with the fallout from the dispute with rapper and former partner Kanye West.

The German sneaker brand said if it has to write off all existing Yeezy inventory it could report such a loss in 2023. It has previously flagged that its profit and revenue have been hurt by the damage from ending the lucrative line.

New Chief Executive Officer Bjorn Gulden is looking to inject a fresh era of creativity and optimism into a brand beset by crises on several fronts. He’s conducting a strategic review aimed at “reigniting profitable growth” by next year that could cost as much as €200m in 2023.

“The numbers speak for themselves,” Gulden said in a statement on the company website. “We are currently not performing the way we should.” 

Adidas will put its full focus on consumers along with its athletes, retail partners and employees, Gulden said. The goal is to create “brand heat,” improve products, better serve distributors and become “a great and fun place to work,” he said.

“We need to put the pieces back together again,” he said in the statement. “I am convinced that over time we will make Adidas shine again. But we need some time.” Gulden started at Adidas in January after nearly a decade running cross-town rival Puma, where he led a turnaround that he also began by resetting profit and sales growth expectations. 

His main focus at Adidas will be reinvigorating the brand’s lackluster pipeline of sneakers and apparel and winning back customers in the US, Europe and China. He will also have to figure out if Adidas can sell or repurpose Yeezy designs to customers without the brand name.

Sales will sink at a high-single-digit rate in 2023, the German company forecast late Thursday. That compares with the roughly 4% growth that analysts were estimating.

The sportswear group terminated its lucrative design partnership with Ye, formerly known as Kanye West, in late October after he made a series of antisemitic and racist remarks. 

Adidas had become heavily dependent on the Yeezy line, which it dubbed one of the most successful in the industry’s history, and it took weeks of deliberations inside the company before it finally terminated the partnership. Other retailers such as Gap Inc. moved much quicker to sever ties.

Adidas is also still facing challenges in China where demand for its shoes and clothing has fallen amid a consumer boycott and as a result of Covid restrictions.

The weak full-year results and muted sales guidance for 2023 means the new leadership must improve execution and brand health, said Poonam Goyal, a Bloomberg Intelligence senior industry analyst.

“The sales guidance is more than just the €1.2 billion in lost Yeezy sales, we believe. It reflects a struggle to draw sales and staunch market-share loss, despite a rise in demand for athleisure worldwide,” she added.

Adidas American depositary receipts fell 9%, the most in almost three years.

Bloomberg