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Yeezy is still a cash cow for Adidas, even after the brands split.
A Yeezy product drop in June generated revenues of around €400 million in the second quarter, the company said during its earnings results on Thursday; slightly lower than consensus estimates but still enabling Adidas to up its full-year guidance.
Across the company, sales were flat on a currency-neutral basis in the three months ended 30 June, at €5.34 billion. Operating profit of €176 million was “substantially higher” than initially forecast, said CEO Bjørn Gulden, who joined in January to steer Adidas’s turnaround.
“We are happy with the way the second quarter developed. The core Adidas business was slightly better than we expected,” said Gulden. “Although we still have too much slow-moving inventory in the market, sell-through has been improving… The sale of the first part of the Yeezy inventory did, of course, help both our top and bottom line in the quarter.”
The German sportswear brand announced it was ending production of its collaboration with Ye (formerly Kanye West) with immediate effect after the American rapper, producer and designer appeared to embrace white supremacist ideology at his Paris Fashion Week show in September and subsequently made antisemitic remarks online. Adidas, which had come under pressure from consumers and activist groups to take action, issued a statement that it “does not tolerate anti-semitism and any other sort of hate speech”. Gap, Balenciaga, Foot Locker and TK Maxx also severed ties with Ye.
Adidas said the decision would have a short-term negative impact of up to €250 million on its net income in 2022 and began weighing up options for disposing of the stock that had already been in production — leading to concerns among sustainability advocates that some of the product would be destroyed. In March, Adidas warned that if it did not find a way to clear these products, it was looking at a €500 million hit to its bottom line in 2023. Two months later, it announced its decision to sell the stock and donate a portion of the revenues to charity.
“This is much better than destroying and writing off the inventory and allows us to make substantial donations to organisations like the Anti-Defamation League, the Philonise Keeta Floyd Institute for Social Change and Robert Kraft’s Foundation to Combat Antisemitism. And it is, of course, also helping both our cash flow and general financial strength,” the company said in its earning statement today. In Q2, Adidas made donations and accruals for further donations amounting to around €110 million.
On 24 July, Adidas announced that it would adjust its full-year guidance to reflect the positive sell-through of the first drop of Yeezy inventory. However, it noted that “macroeconomic challenges and geopolitical tensions persist”, particularly in North America, Europe and the uncertainty around the recovery in China. As such, it expects revenues to decline at a mid-single-digit rate in 2023 versus the high-single-digit rate previously forecast. Full-year operating losses are now expected to be closer to €450 million, down from €700 million.
The company said it will “continue to carefully sell off more of the existing Yeezy inventory” — a second drop was released on 2 August.
“We are using 2023 to clean inventories, work on future products, improve the way we work, build better partnerships, and lay the foundation for a better 2024 and a good and profitable Adidas in 2025 and 2026,” said Gulden. “2023 is not about trying to show short-term results.”
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