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Adidas manages ‘Yeezy’ line losses to post €60m Q1 operating profit

Discontinued Kanye West products costs company €400m in quarterly sales.

9 May 2023 Josh Sim

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  • Net sales drop by 1% YoY to €5.27bn
  • Adidas outperforms analyst expectations by €15m
  • CEO confirms company is close to figuring out how to handle remaining ‘Yeezy’ stock worth €1.2bn

Sportswear giant Adidas recorded an operating profit of €60 million (US$65.8 million) for the first quarter of 2023, outperforming analyst expectations by €15 million (US$16.4 million).

Its latest financial results come after Bjørn Gulden, the company’s chief executive, had previously billed 2023 as a “transition year”, following the decision to terminate its ‘Yeezy’ partnership with rapper Kanye West. Adidas said the discontinuation of the ‘Yeezy’ line had cost itself €400 million (US$438.5 million) in sales for the quarter, mainly across North America and greater China, as well as Europe, the Middle East and Africa (EMEA), with the executive admitting the line’s termination was “of course hurting us”.

Gulden later said on a conference call that the apparel giant was “getting closer and closer to making a decision” on what it would do with the remaining unsold ‘Yeezy’ branded products, which previously was estimated to be worth €1.2 billion (US$1.3 billion). Adidas is currently facing a class-action lawsuit from investors, who allege the sportswear giant knew about West’s controversial remarks and behaviour years before it terminated its partnership.

For the quarter, net sales dropped by one per cent year-over-year (YoY) to €5.27 billion (US$5.78 billion), with Adidas noting sales growth would have increased by nine per cent excluding the ‘Yeezy’ line. This was still better than the four per cent drop predicted by economic forecasts, resulting in the company’s shares rising by eight per cent, to its highest level since last August.

Its business in North America was particularly hit badly by the loss of the ‘Yeezy’ line, with a 20 per cent sales decline recorded for the region in the quarter. In China meanwhile, the sellout of products increased YoY, resulting in double-digit growth across retail stores, despite a decrease in total revenue by nine per cent. Meanwhile, Asia-Pacific and EMEA saw a four per cent and 16 per cent jump in sales respectively, while the company performed strongly in Latin America with a 49 per cent increase in sales.

In terms of product groups, sales in the performance category grew at a double-digit rate, following a series of product launches, including the jerseys for the 2023 Fifa Women’s World Cup. While revenues for the lifestyle category declined for the quarter, Adidas noted the ‘extraordinary demand’ for its ‘terrace’ segment in all markets, with the company planning to scale up production of its ‘Samba, Gazelle and Campus’ product lines.

The sportswear titan noted its gross margin had dropped to 44.8 per cent as a result of the loss of the ‘Yeezy’ line, as well as increased supply chain costs and more discounting for its products. Its inventory position improved by 25 per cent YoY to €5.7 billion (US$6.25 billion), with the company also maintaining its prior prediction of an operating loss of €700 million (US$767.3 million) in 2023.

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