Adidas has disclosed additional information regarding the potential negative impact on its business as a result of its recent breakup with Yeformerly known as Kanye West, in October last year.
It’s possible that Adidas could face financial losses if it is unable to sell off excess Yeezy inventory. According to the firm’s prediction on Thursday, it could lose out on operating revenues of roughly $700 million in 2023.
The business predicted that its currency-neutral sales (sales accounting for fluctuation of foreign currencies) would similarly fail. It has also declared that despite the commercial partnership ending in October, it still intends to sell Yeezys without Ye.
If the firm does not find an alternative use for the existing Yeezy inventory, it will be written down. This, according to the firm, will reduce its operating profit by an extra $500 million this year. Adidas also anticipates one-time expenses of up to $200 million in 2023.
The sports company also claimed that if that happens, operating profits will barely be sufficient to break even.
Adidas’ 2023 records already indicate weak performance
According to dio Bjrn Gulden, CEO of Adidas, the company figures already indicate that the company’s performance so far has not met expectations. He says that 2023 will be a year of change to lay the groundwork for the company to once again expand and be profitable.
Adidas stated that a thorough evaluation of its operations is being done with the goal of returning to profitability in 2024. The sportswear giant has hinted that it may start selling Yeezys this year without the logo. The decision to purchase the sneakers without a Ye connection is divided among Adidas Yeezys lovers.
Declining net income and operating profits
Gulden left Puma to become CEO of Adidas on January 1. While at Puma, he effectively oversaw a sales return and helped the company work with stars like Jay-Z, J.Cole, and Rihanna.
At its height, the Yeezy brand brought Adidas $2 billion in sales thanks to highly – anticipated models including the Foam RNNR, 350 V2, and 500. The company’s first $1 billion in sales was achieved in 2019.
However, Ye’s business partnership with Adidas ended on October 25, just in time for the crucial holiday shopping season. The artist’s recurrent anti-Semitic remarks were the reasons behind the fallout. Adidas stopped all Yeezy transactions right away and requested that its wholesale partners do the same. However, reselling websites like StockX, Goat, and eBay still carry Yeezys.
According to the company’s preliminary 2022 performance, last year, sales increased by 6% to $22 billion. However, due in part to the termination of its partnership with Yeezy, it announces its operating earnings and net income to decline dramatically.
Adidas foresaw the negative impact on its business following its decision to part ways with Yeez. But it also predicted that the impact would be short-term and would affect its net profits for the year by about $268 million.