Adidas has upgraded its financial predictions for the year, attributing the optimistic forecast to a revival in Yeezy product sales following a discontinuation of its partnership with former Yeezy lead, Kanye West, back in October. This breakup was in response to West’s repeated antisemitic remarks.
The company announced preliminary results for the second quarter on Monday, attributing the positive upturn in profits and revenue to the decision to reintroduce select Yeezy items, an initiative that was unveiled in May.
Adidas pledged to contribute a substantial portion of the proceeds to bodies representing those harmed by West’s controversial remarks and actions. This move followed extensive deliberation on how to manage the lingering Yeezy inventory, valued at approximately $1.3 billion (or 1.2 billion euros), which was expected to inflict a potential operating profit hit of $537 million (or €500 million).
Diminished Losses and Strong Yeezy Sales
The inclusion of recent Yeezy sales has led Adidas to revise the expected inventory-related loss to a lesser €400 million, down from the previously projected €500 million. Despite maintaining the estimated total one-time costs for the year at €200 million, the sportswear giant foresees an overall operating loss of €450 million in 2023, a significant decrease from the previous €700 million expectation.
Adidas remains optimistic about the potential of strong future Yeezy releases, which they predict could further boost financial outcomes.
Updated Financial Guidance for 2023
Adidas’s revised 2023 forecast is a positive sign for the business. The company’s previous forecast of a high-single-digit revenue decline was much more pessimistic, and the new forecast indicates that Adidas is confident in its ability to weather the current economic challenges. Additionally, the company’s prediction of break-even operating profit, excluding the impact of its Yeezy partnership with Kanye West, is also encouraging. This suggests that Adidas is on track to return to profitability in the near future.
Adidas’s financial data in 2022:
- Revenue: €29.6 billion
- Net income: €5.4 billion
- Operating profit: €6.5 billion
- Adidas’s Yeezy line of shoes and apparel generated €1.3 billion in revenue in 2022.
- Adidas pledged to contribute a substantial portion of the proceeds from the Yeezy line to bodies representing those harmed by Kanye West’s controversial remarks and actions.
- This move followed extensive deliberation on how to manage the lingering Yeezy inventory, which was valued at approximately $1.3 billion (or 1.2 billion euros).
- The potential operating profit hit from the Yeezy line was estimated to be $537 million (or €500 million)
Overall, Adidas’s revised forecast is a sign that the company is taking the necessary steps to weather the current economic storm and emerge stronger on the other side.
Beyond Yeezy: A Glimpse at Adidas’ Q2 Performance
On a broader scale, Adidas reported flat Q2 revenues compared to last year when viewed in currency-neutral terms, though it suffered a 5% dip in euro terms, coming in at €5.343 billion. The Q2 gross margin, however, grew by 0.6 percentage points to 50.9%. The company highlighted that their business beyond Yeezy also surpassed Q2 projections.
Unprecedented Yeezy Demand
A recent Financial Times report pointed out that Adidas’ inaugural Yeezy sale brought in over €508 million (or $563 million), resulting from the sale of 4 million pairs of sneakers by June 2. However, the demand was so overwhelming that Adidas fell short of fulfilling every order.
Wedbush analyst Tom Nikic noted in a previous communication to investors that the company’s latest Yeezy releases sold out promptly, with several units reselling at a premium in the aftermarket. Nikic suggested that the customer demand for these products still holds strong, adding that Adidas should be able to sell through the already stocked inventory following their separation from Mr. West.
Adidas has upgraded its full-year financial forecast following the resumption of Yeezy product sales after discontinuing the partnership with Kanye West. The company experienced improved Q2 results due to Yeezy sales, allowing for a revised operating loss projection for 2023. In addition to the Yeezy impact, Adidas’ overall Q2 performance exceeded expectations. The sportswear giant remains optimistic about the potential of future Yeezy releases to enhance its financial performance further.
Hi, I’m Oren, founder at BIGINTRO, a content strategy agency that helps B2B companies drive growth. We develop search, social, PR, and content marketing strategies tailored to business goals. I also have a dog named Milo.