Adidas is able to alleviate the impact of operational losses as the clearance of the massive Yeezy inventory takes turn for the good.
On Monday, July 24, German sportswear giant Adidas AG (ETR: ADS) said that it expects a significant drop in operating losses for the year 2023. This commentary from the management comes after Adidas managed better-than-expected sales of its Yeezy inventory after breaking ties with the rapper and designer Kanye West.
The German sports company has revised its 2023 operating loss forecast to €450 million ($499 million), down from the previous estimate of €700 million. This positive change is due to the initial sales of its Yeezy sneakers inventory. The company expects future releases of Yeezy sneakers to potentially further improve its financial results.
During the trading hours on Tuesday, July 25, the Adidas (ADS) stock price is trading at 5.76% up at a price of 184.86 EUR. For the second quarter of 2023, Adidas reported sales of €5.34 billion, beating the average estimate of €5.05 billion.
The company’s main Adidas business performed slightly better than expected. It anticipates that the operating profit, excluding any extraordinary Yeezy-related expenses and the ongoing strategic review, will be approximately break-even for the year. Referring to the further release of its existing inventory, Adidas said: “If successful, potential future Yeezy drops would further improve the company’s results.”
Adidas Breaking Up with Kanye West
Adidas terminated its collaboration with musician Ye (formerly known as Kanye West) in October 2022 due to his offensive and antisemitic remarks. After facing widespread criticism online, Adidas deemed Ye’s comments “unacceptable, hateful, and dangerous”. As a result, they discontinued the production of Yeezy-branded products, including footwear and clothing, and ceased all payments to Ye and his companies.
However, the decision left the company thinking about what would it do with the existing Yeezy stock. In May, Adidas declared its plan to sell the inventory and donate a substantial portion of the proceeds to organizations such as the Anti-Defamation League and the Philonise and Keeta Floyd Institute for Social Change.
In a note, James Grzinic of Jefferies said:
“The key takeaway here is the remarkable markup that Yeezy still commands.”
The analyst’s estimate indicates that Yeezy contributed approximately €450 million in revenue during the second quarter. They also mentioned that Adidas’s new forecast is cautious and includes measures to protect against potential risks in the broader economic conditions.