Adidas AG has once again raised its guidance after the successful sale of another batch of Yeezy sneakers, marking a significant boost for the German sportswear company. Following the termination of its partnership with rapper and designer Kanye West, also known as Ye, Adidas now expects to report a smaller operating loss of approximately €100 million ($106 million) in 2023. This figure is significantly better than the €450 million loss forecasted in July, which already demonstrated an improvement from the initial warning of a €700 million operating loss if all existing Yeezy inventory had to be written off.
Adidas' American depositary receipts traded 3.1% higher following the news on Tuesday. The company has successfully released two drops of Yeezy products since May, and additional boosts in sales from its inventory are anticipated during the upcoming holiday shopping season. However, these subsequent sales are expected to have a lesser positive impact on earnings compared to the initial batch released in May and June, which generated around €400 million in revenue.
After cutting ties with Ye due to his controversial remarks, Adidas found itself with approximately €1.2 billion worth of Yeezy sneakers in limbo. In an effort to utilize this inventory, the company began selling the remaining Yeezy shoes in May and pledged to donate a significant portion of the proceeds to charities combating discrimination and hate speech.
As a result of the successful sales, Adidas has seen a decrease in the potential write-off for the remaining Yeezy inventory, reducing the figure from €400 million to approximately €300 million. These sales provide a much-needed boost for Adidas as CEO Bjorn Gulden, who assumed his position in January, works to turn the company's fortunes around. Adidas has struggled to achieve growth in North America, partly due to a large inventory of unsold footwear and apparel.
Nevertheless, Adidas appears to be regaining momentum in China and benefiting from strong global demand for its Terrace line of sneakers, which includes popular styles like the Samba and Gazelle. With the continued success of the Yeezy releases and positive market response, Adidas is positioning itself for a more promising future.