Adidas Could Lose $750 Million on Unsold Yeezys

Adidas Could Lose $750 Million on Unsold Yeezys

AShares of didas AG fell after the German shoemaker warned of an operating loss of up to 700 million euros ($752 million) in 2023 following fallout from its dispute with the rapper and former partner Yes.

The German sneaker brand said it was the worst case scenario if it had to write off all existing Yeezy inventory. He previously reported that profits and revenue were hit by the damage caused by the end of the lucrative line. The stock fell 11%, having lost half its value since mid-2021.

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“The numbers speak for themselves,” new CEO Bjorn Gulden said of the company. website. “We are not currently operating as we should.”

Gulden is looking to freshen up a brand beset by crises on multiple fronts. He is leading a strategic review aimed at reviving profitable growth by next year that could cost up to 200 million euros in 2023. A loss would be the first in at least three decades.

“It looks like the new CEO wants to set the bar low and take early action in 2023 to make the changes needed” to turn the company around, Cristina Fernandez, an analyst at Telsey Advisory Group, wrote via email.

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THE new CEO started at Adidas in January after nearly a decade at the helm of rival Puma, where he led a turnaround that he also began by resetting expectations for profit and sales growth. His primary focus at Adidas will be to reinvigorate the brand’s lackluster sneaker and apparel pipeline and win back customers in the US, Europe and China. It will also need to determine whether Adidas can sell or reuse Yeezy designs to customers without the brand name.

“We have to pick up the pieces,” Gulden said. “I am convinced that over time we will make Adidas shine again. But we need time.

The sportswear group ended its lucrative design partnership with Ye, formerly known as Kanye West, in late October after he made a series of anti-Semitic and racist remarks. Adidas had become heavily reliant on the Yeezy line, which it called one of the most successful in the history of the industry, and it took weeks of deliberation within the company before it was finally terminated. to the partnership. Other retailers such as Gap Inc. moved much faster to sever ties.

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Sales will fall at a high single digit rate in 2023, the German company announced on Thursday evening. That compares to the roughly 4% growth that analysts were estimating.

Adidas will put its full focus on consumers as well as its athletes, retail partners and employees, Gulden said. The goal is to create “brand warmth,” improve products, better serve distributors and become “a great and fun place to work,” he said.

Adidas also still faces challenges in China where demand for its shoes and apparel has plummeted amid a consumer boycott and following Covid restrictions.

Weak annual results and muted sales guidance for 2023 mean new management needs to improve execution and brand health, said Poonam Goyal, senior industry analyst at Bloomberg Intelligence.

“We believe that the sales forecast is not limited to the 1.2 billion euros in lost Yeezy sales. This reflects a struggle to attract sales and a steady loss of market share, despite an increase in demand for Yeezy. athleisure in the world,” she added.

—With the help of John Lauerman.

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