Adidas, the renowned sportswear company, provided an update on its Yeezy problem, revealing an anticipated operating loss of over €700 million ($772 million) in 2023. The bulk of this loss stems from the unsold stock of Yeezy footwear. Additionally, Adidas stated that a decision not to repurpose any existing Yeezy products could result in a write-off of the inventory, leading to an additional €500 million hit to operating profit. While disappointing analysts by offering no concrete plan for the excess Yeezy stock, Adidas did share its financial performance figures.

Adidas’ Financial Performance

Sales in North America experienced a 20% decline, primarily due to the discontinuation of the Yeezy business. Excluding Yeezy, sales were down 5%. The discontinuation of the Yeezy business resulted in a €400 million ($441 million) drag on the year-over-year revenue comparison, affecting regions such as North America, Greater China, and EMEA.

In the first quarter of 2023, Adidas achieved an operating profit of €60 million euros ($66 million), surpassing analysts’ expectations of €15 million ($16.5 million). Revenues declined by 1% to approximately €5.3 billion compared to the previous year, performing better than the projected 4% drop. Despite a 9% sales decline in China, it still outperformed expectations. Following the release of the earnings results, Adidas’ shares rose by 6%.

A Transition Year for Adidas

Adidas CEO Bjørn Gulden referred to 2023 as a “transition year” for the company, focusing on building a strong foundation for a better future. He acknowledged that disappointing numbers are expected but emphasized that maximizing short-term financial results is not the primary goal. The aim is to establish a robust base for improved performance in 2024 and subsequent years.

A Brief Timeline of Adidas and Yeezy

October 2022: Adidas severs ties with Kanye West (Ye) following his anti-semitic remarks. The company announces its decision not to support future Yeezy products and instructs retailers to remove existing stock from shelves and online platforms.

November 2022: Adidas initiates an investigation into Ye’s behavior during his seven-year co-designing tenure at the company. Additionally, the German shoemaker asserts ownership of patents, copyrights, and intellectual property rights, enabling it to continue selling the shoe without branding. Adidas pledges over $1 million to the Anti-Defamation League, an international Jewish non-governmental organization.

February 2023: Adidas quietly shuts down the website, previously used by Ye to launch Adidas Yeezy collaborations, restocks, apparel items, Balenciaga collaborations, and GAP products.

Adidas faces significant challenges with its Yeezy line, projecting substantial operating losses and grappling with a surplus of unsold stock. While the company did not offer specific plans for addressing this issue, it remains determined to navigate through a transition year, focusing on establishing a solid foundation for future growth. As Adidas aims for a brighter outlook in 2024 and beyond, the fate of the Yeezy brand and its excess inventory continues to be a critical aspect for the company to address.