By Tim Loh
Adidas AG gained after forecasting a less dramatic loss this year following the first batch of sales of Yeezy sneakers from the canceled partnership with the rapper and designer Kanye West.
The German sports company expects to report an operating loss of €450 million ($499 million) in 2023, down from the previous figure of €700 million, it said in a statement late Monday. That’s based on initial sales of its inventory of Yeezy sneakers, and future drops could further improve the company’s results, it said.
The shares rose as much as 3.6% in Frankfurt trading early Tuesday.
The rest of Adidas’s business is also performing better than expected, with full-year sales now likely to decline at a mid-single-digit rate, compared to previous guidance of a high-single-digit rate decline, the company said.
Second-quarter sales were €5.34 billion, beating the €5.05 billion average estimate from analysts in a Bloomberg survey.
“The key takeaway here is the remarkable markup that Yeezy still commands,” James Grzinic of Jefferies said in a note. The analyst estimated that Yeezy added about €450 million in revenue during the second quarter and suggested Adidas’s “conservative” new forecast bakes in “plenty of downside protection to the risks of a deteriorating macro.”
Chief Executive Officer Bjorn Gulden, who took over in January, has a history of offering conservative financial targets early in the year and outperforming them. Gulden did that repeatedly during his nearly decade-long tenure as CEO of Puma SE, which he left late last year.
After shocking investors in February with Adidas’s targets for the year, Gulden has since offered plenty of reasons for optimism, from initial signs of a rebound in demand in China to the company ramping up production of its classic Samba sneakers to meet high demand.
What Bloomberg Intelligence Says
Adidas’ better-than-expected 2Q results, with currency-neutral sales flat vs. consensus’ mid-single-digit decline, along with raised full-year 2023 guidance, is evidence to us that the company’s turnaround efforts have begun in earnest. Improved gross margin (up 60 bps to 50.9%) stood out to us, as sales from potential future Yeezy drops could keep helping reduce write-off drag.
— Poonam Goyal, BI senior retail analyst
Yet the main unanswered question for months was the Yeezy inventory. Adidas terminated its collaboration agreement in October after West, who now goes by Ye, made a series of antisemitic remarks, leaving about €1.2 billion worth of sneakers in limbo.
In May, Adidas said it would begin selling its pile of Yeezy shoes left over from its defunct partnership with West. The company has pledged to donate a “significant amount” of the proceeds to charities that work to fight discrimination and hate speech.
The potential write-off of the remaining Yeezy inventory is now €400 million, Adidas said. Before the recent Yeezy sales, that figure was €500 million.
