Yeezy – an iconic shoe model that went from Adidas’ dream partnership to the brand’s financial nightmare in recent years. And now, the ghost of Yeezy (referring to the stock surplus) continues to haunt the German sportswear brand.
Adidas has faced 12 challenging months since cutting ties with rapper Kanye West, who co-launched Yeezy in 2015.
For the first time in 30 years, the company reported a net loss in 2023 as CEO Bjørn Gulden is also working to get the company back on track.
According to Reuters, the €58 million ($63.4 million) loss last year compared to a €254 million ($277.61 million) profit in 2022 marks Adidas’ first annual net loss since 1992. Adidas also attributes this decline to the impact of increased tax rates.
CEO Gulden, who has held this position since the beginning of 2023, said in a statement Wednesday, “While not as good as we wanted, 2023 ended better than what I anticipated at the start of the year.”
He stated, “Despite losing a lot of revenue from Yeezy and a very cautious sell-in strategy, we still managed to achieve flat sales.”
It also has to be acknowledged that, while the financial disaster of parting ways with Yeezy was not easy, Adidas has also faced other factors such as currency fluctuations and decreased demand for sportswear, leading to a 60% decline in overall operating profit compared to 2022. This figure is higher than the previously expected €1 billion, but still shows the “pain” that Adidas has had to deal with in resolving the Yeezy inventory.
The company also faces other challenges. In North America, the company’s second-largest market, Adidas expects sales to decline in 2024 due to excess inventory, while the brand continues to release Yeezy pairs. Last month, Adidas announced the launch of a new sports shoe.
In January, when the sportswear giant announced preliminary results, the company said they would sell the remaining Yeezys “at least at cost” to eliminate excess inventory without canceling it. This is a difficult statement for Adidas as they clearly want to distance themselves from the controversial collaboration with West.
In fact, this sports shoe line has brought remarkable profits to Adidas, even months after the brand divorced from West. Adidas revealed that Yeezy sneakers generated €750 million ($819 million) in revenue in Q2 and Q3 of 2023.
Adidas expects operating profit to reach €500 million ($547 million) this year, despite their Yeezy reserve being sold at cost.
There is still positive news for Adidas: Some other sneaker models from Adidas have become more popular. For example, the brand’s Samba and Gazelle sneakers have helped improve the performance of the footwear and apparel segment in 2023.
Despite the company’s net loss in 2023, Adidas said its board of directors will maintain a dividend of 0.70 euro per share.
Thomas Joekel, an investment portfolio manager at Union Investment, told Reuters, “Everything is clearly going in the right direction at Adidas since Bjorn Gulden took over. The brand’s heat is increasing, which can also be seen from the fact that there are fewer products on discount sale now.”
Deutsche Bank analysts emphasized that the current year will mark an ongoing transformation for Adidas, but also pointed out the “recovery in industry momentum”.
“Although there is still a lot of work to be done, I feel very confident that we are heading in the right direction. We will bring Adidas back again. Just give us some time,” Gulden said.
Source: Fortune
