Yeezy – the iconic shoe model went from Adidas’s dream partnership to the company’s financial nightmare in recent years. And most recently, the specter of Yeezy (referring to the surplus of goods) continues to haunt the German sportswear brand.
Adidas has endured a challenging 12 months since breaking ties with rapper Kanye West, who collaborated on the Yeezy launch in 2015.
For the first time in 30 years, the company reported a net loss in 2023 as CEO Bjørn Gulden also tried to steer the company back on track.
According to Reuters, a loss of €58 million ($63.4 million) last year compared to a net profit of €254 million ($277.61 million) in 2022 marked Adidas’ first annual net loss since 1992. Adidas also attributed the decline to the impact of increased tariffs.
CEO Gulden, who has held the position since the beginning of 2023, said in a statement on Wednesday: “While it is still not good enough, 2023 ended better than I anticipated at the start of the year.”
He said: “Despite a lot of sales lost from Yeezy and a very cautious sell-in strategy, we still delivered flat sales.”
It must also be acknowledged that while the financial catastrophe of parting with Yeezy was not easy, Adidas also had to contend with factors such as currency fluctuations and declining demand for sportswear, resulting in a overall 60% decline in operating profit compared to 2022. This figure is higher than earlier estimates by nearly 1 billion euros, but still highlights the “pain” Adidas must endure in resolving the Yeezy inventory.
The company also faces a number of other issues. In North America, the company’s second-largest market, Adidas predicts a decline in sales in 2024 due to excess inventory, while the brand continues to release new pairs of Yeezy. Last month, Adidas announced the launch of a new sport shoe.
In January, when the sportswear giant announced preliminary results, the company said it would sell off any remaining Yeezy at “at least at cost” to clear surplus inventory without voiding them. This is a difficult statement for Adidas as they clearly want to distance themselves from the controversial partnership with West.
In fact, this line of sport shoes has brought remarkable profits to Adidas, even months after the company divorced from West. Adidas said the Yeezy sport shoes brought in €750 million ($819 million) in revenue in Q2 and Q3 2023.
Adidas expects operating profit to reach €500 million ($547 million) this year, even though their Yeezy inventory has been sold at cost.
There are still positive news for Adidas: Some of the company’s other shoe models have become more popular. For example, the company’s Samba and Gazelle shoes helped boost the performance of the footwear and apparel segment in 2023.
Despite the significant net loss in 2023, Adidas said its board will maintain a dividend of €0.70 per share.
Thomas Joekel, investment portfolio director at Union Investment, told Reuters, “Everything is clearly on track at Adidas since Bjorn Gulden took over. The brand’s popularity is increasing, which can also be seen from the fact that currently fewer products have to be sold at a discount.”
Analysts at Deutsche Bank highlight that this year marks an ongoing transition for Adidas, but also note the “recovery in industry momentum”.
“Although there is still much work to be done, I feel very confident that we are heading in the right direction. We will bring Adidas back. Give us a little time,” Gulden said.
Source: Fortune
