Yeezy – The iconic shoe model that went from Adidas’ dream partnership to the brand’s financial nightmare in recent years. And most recently, the ghost of Yeezy (referring to the excess inventory) continues to haunt the German sportswear brand.
Adidas has had a challenging 12 months since ending its collaboration with rapper Kanye West, who launched Yeezy in 2015.
For the first time in 30 years, the company reported a net loss in 2023 as CEO Bjørn Gulden was also trying to steer the company in the right direction.
According to Reuters, the €58 million ($63.4 million) loss last year compared to a €254 million ($277.61 million) net income in 2022 marked Adidas’ first annual loss since 1992. Adidas also attributed this decline to the impact of higher tax rates.
CEO Gulden, who assumed the position in early 2023, said in a statement on Wednesday: “While still not good enough, 2023 ended better than I anticipated at the beginning of the year.”
He added, “Despite losing a lot of revenue from Yeezy and a very cautious sell-in strategy, we still managed to achieve unchanged sales.”
It is also worth noting that, while the financial disaster of parting ways with Yeezy was not an easy one, Adidas also had to contend with factors such as currency exchange rate fluctuations and a decline in demand for sportswear, leading to a 60% decrease in overall operating profit compared to 2022. This figure was higher than nearly €1 billion earlier forecasts, but still underlines the “pain” Adidas had to endure in resolving the Yeezy inventory.
The company also faced other issues. In North America, the company’s second largest market, Adidas expects sales to decline in 2024 due to excess inventory, while the company continues to release Yeezys. Last month, Adidas announced the launch of a new sports shoe collection.
In January, when the sportswear giant released preliminary results, the company said it would sell the remaining Yeezys “at least at cost” to clear excess inventory without resorting to cancellations. It was a difficult statement for Adidas as they clearly wanted to distance themselves from the controversial collaboration with West.
In fact, the sports shoe line had brought astonishing profits to Adidas, even months after the brand’s split with West. Adidas announced that Yeezy sports shoes generated €750 million ($819 million) in revenue in the second and third quarters of 2023.
Adidas expects operating profit to reach €500 million ($547 million) this year, although their Yeezy inventory has been sold at cost.
There is still positive news for Adidas: Other Adidas shoe models have become more popular. For example, the brand’s Samba and Gazelle shoes helped boost the performance of the footwear and apparel segment in 2023.
Although the company’s net loss in 2023 is substantial, Adidas said their supervisory board will maintain a dividend of €0.70 per share.
Thomas Joekel, 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 popularity is increasing, which can also be seen from the fact that there are fewer products that need to be sold at a discount.”
Deutsche Bank analysts emphasized that the current year will mark an ongoing transformation for Adidas, but also highlighted “a recovery in industry momentum.”
“There is still a lot of work to be done, but I feel very confident that we are heading in the right direction. We will bring Adidas back. Give us some time,” Gulden said.
Source: Fortune
