Adidas still hasn’t digested the break-up with rapper Ye (Kanye West). On the contrary, it’s shoe stocks continue to pile up. Yet the trainer manufacturer is performing a tad better than expected.
The accursed Yeezy effect
A flat line is already reason for relief at Adidas. The trainer brand posted 1% less revenue (5.27 billion euros) in the first quarter, but saw shoe sales increase by 1%. There was also a small operating profit of 60 million euros, although the gross margin fell 5.1 percentage points to 44.8%.
The quarter thus ended “a little better than we expected”, says CEO Bjørn Gulden. Indeed, there is one clear culprit: the rapper Ye with whom the trainer maker marketed the very successful Yeezy collections until last year, when Kim Kardashian’s ex went too far. Since then, the brand has been stuck with millions of unsellable shoes. The company has even coined a term for it: the Yeezy effect.
“Just need some time”
Inventories are still too high, admits new top executive Gulden, but already 300 million euros lower than at the beginning of the year. Of course, that sell-off happened at steep discounts, which did not help margins – especially in these times of high inflation and costs. Net, Adidas lost 24 million euros last quarter. A year earlier, net profit was still 310 million euros.
For the full year, Adidas expects revenue to fall between 5 and 9%, “as macroeconomic challenges and geopolitical tensions persist”. The brand still fears recession in North America and Europe, apart from the famous “Yeezy effect”. If the existing stock does not get sold, it means a loss of 1.2 billion euros in sales.
In the worst-case scenario, the company expects an operating loss 700 million euros in 2023. “2023 will be a bumpy year with disappointing numbers,” says Gulden, but “we just need some time. It is a transition year to build a strong base for a better 2024 and a good 2025 and beyond.”