German sportswear giant Adidas announced its preliminary financial results for the third quarter of 2023, and the standout performer was Kanye West’s Yeezy line, which had an unexpected positive impact on the company’s earnings.
In a quarter marked by a mix of challenges and resilience, Adidas revealed that its currency-neutral revenues experienced a one-percent uptick compared to the same period in the previous year. This was significant given the ongoing global economic uncertainties.
However, in euro terms, the company reported a six-percent decline in revenues, totaling €5.99 billion ($6.33 billion), compared to €6.41 billion ($6.77 billion) in 2022. Despite the dip in revenue, Adidas managed to boost its gross margin by 0.2 percentage points, reaching 49.3 percent during the quarter, a marginal improvement from 49.1 percent in 2022.
This margin increase was attributed to the positive influence of selling off the remaining highly sought-after Yeezy inventory. This significantly contributed to Adidas’s resilient financial performance, thanks to the brand’s continued popularity and market presence.
As a result of this resilient performance, Adidas has now revised its full-year guidance. The company now expects a low-single-digit decline in currency-neutral revenues for 2023, a more optimistic outlook compared to the previous projection of a mid-single-digit decline.
Furthermore, the underlying operating profit, excluding any Yeezy-related one-offs and costs from the strategic review, is expected to reach around €100 million ($105.6 million), a significant shift from the earlier projection of breaking even.
Adidas holds $316.9 million worth of unsold Kanye West’s Yeezy inventory
With the positive impact of West’s Yeezy line and revised inventory evaluations, the potential write-off for the remaining Yeezy inventory now stands at around €300 million ($316.9 million), down from the earlier estimation of €400 million ($422.45 million).
In addition, one-off costs related to the strategic review are expected to remain at up to €200 million ($211.23 million). Consequently, Adidas anticipates an operating loss of around €100 million ($105.6 million) for the full 2023 year, a significant improvement from the previous projection of a €450-million ($475.34 million) loss.
Yeezy boost to Adidas’s financial performance began with an unconventional decision earlier this year. Following the termination of the Adidas-Yeezy collaboration in October 2022, the sportswear giant chose to sell the existing inventory of Yeezy sneakers produced in partnership with Kanye West rather than burning them.
Adidas held over $1-billion worth of unsold Yeezy inventory in May
In May, Adidas CEO Bjorn Gulden revealed that the company possessed an impressive inventory of 500 million Yeezy shoes, valued at more than $1 billion, and planned to gradually release them to the market. A portion of the proceeds from these sales would be donated to organizations affected by West’s controversial statements.
The first batch of Yeezy sneakers was launched in June and saw unprecedented demand, quickly selling out. This success resulted in an operating profit of €176 million ($193.8 million) in the second quarter, surpassing initial projections.
The triumph of the initial sale led to approximately 20 to 25 percent of the Yeezy sneakers being cleared from warehouses, contributing €150 million ($165.2 million) to Adidas’s operating earnings for the April-to-June period.
