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Yeezy destocking helps lift Adidas sales outlook
Global Banking & Finance Review®
Company
By Helen Reid
LONDON (Reuters) -Adidas sales should fall only slightly in 2023, a better outcome than previously expected, the sportswear giant said on Thursday, confirming strong demand for its remaining Yeezy shoes would help narrow a projected full-year loss.
Adidas shares have gained 40% since the start of the year as investors bet on CEO Bjorn Gulden’s ability to turn the company around after a chaotic break-up with Yeezy designer Ye, the rapper previously known as Kanye West, over his antisemitic comments.
Sales of surplus Yeezy shoes generated around 400 million euros ($437 million) in the second quarter, helping Adidas reduce its predicted loss for the year to 450 million euros, down from the 700 million euro loss previously expected.
The company set aside 110 million euros in the quarter for donations to charities including the Foundation to Combat Antisemitism and the Anti-Defamation League, a step it had previously announced in a bid to mitigate the impact of Ye’s public antisemitism.
In currency-neutral terms, overall sales were flat in the same period versus the second quarter of 2022, while they were down 5% in euro terms to 5.3 billion euros. Gross margins increased by 0.6 percentage points to 50.9% in the quarter, thanks to less discounting.
Adidas said it now expected currency-neutral revenues to decline at a mid-single-digit rate in 2023, from the high-single-digit rate previously estimated.
“For Adidas to sell the Yeezy stock well, without a lot of negative media or consumer backlash, is a good outcome,” said Cristina Fernandez, managing director and senior research analyst at Telsey Advisory Group in New York.
The next Yeezy stock sales are also likely to attract strong demand, but may not be as profitable as the first drop, Fernandez said, as Adidas is including wholesale partners rather than only selling through its own channels.
JD Sports said it had started selling Yeezy products from Adidas’ second release of Yeezy shoes on Wednesday.
Adidas said its 2023 outlook does not include the second Yeezy release. Citi analysts expect further Yeezy drops to generate 1.5 billion euros in revenues and 700 million euros in earnings after Adidas’ planned charity donations.
In Greater China, second-quarter sales grew by 16.4% in currency-neutral terms, an indication that efforts to reboot its brand there are starting to bear fruit.
Gulden said in March Adidas would increase its focus on sports in China and sponsor more Chinese athletes.
In June it signed 17-year-old Chinese breakdance athlete Liu Qingyi, and in July announced a collaboration with Shanghai-based fashion designer Shuting Qiu for a collection inspired by women’s football.
North America was the laggard, with sales dropping 16.4% in currency-neutral terms, which Adidas put down to high inventory levels there.
Adidas shares were down 0.8% by 0750 GMT.
($1 = 0.9150 euros)
(Reporting by Helen Reid; Editing by Sonali Paul, Mark Potter and Jan Harvey)
Gross margin is a financial metric that shows the percentage of revenue that exceeds the cost of goods sold (COGS). It indicates how efficiently a company can produce and sell its products.
Currency-neutral revenue refers to the revenue generated by a company without the impact of currency fluctuations. It provides a clearer view of a company's performance in its local currency.
A projected loss is an estimate of the financial loss a company expects to incur over a specific period. It helps businesses plan for potential financial challenges.
A charity donation is a voluntary contribution made by individuals or organizations to support charitable causes or non-profit organizations. It can be in the form of money, goods, or services.
Surplus inventory refers to excess stock that a company has on hand, which exceeds current demand. It can lead to increased holding costs and may require discounting to sell.
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