The Three Stripes’ Q4 2022 earnings call indicates the company is predicting an operating loss of 700 million Euros in 2023.
The loss of Yeezy, unattained sales goals with Ivy Park, and slumping sales in overseas markets have put adidas and its new CEO Bjorn Gulden in a tough financial spot. After reports indicated that the German sportswear giant is sitting on $530 million dollars of Yeezy products, adidas’ earnings call for the fourth quarter of 2022’s fiscal calendar didn’t exactly paint a bright future for the brand. According to the AP, adidas reported that they will be operating at a 700 million Euro loss in 2023.
Outside of the Yeezy situation, the predicted operating loss can be attributed to a number of factors ranging from a 50% drop in sales in China to an uptick in supplies and costs. Even with the negative outlook in the current year, the German sportswear giant still turned a net profit of 638 million Euros for the 2022 fiscal year. However, CEO Bjorn Gulden stated that 2023 would be “a transition year” and that he doesn’t expect adidas to turn a profit until 2024. This marks the first time in 31 years that The Three Stripes will be operating at a loss.
For 2022’s fourth quarter, adidas’ net sales were up by 1.3% compared to 2021, though the brand had around 600 million Euros in lost revenue due to the ending of the Yeezy partnership which was set to release a large amount of products in tandem with the Holiday 2022 season.
Many have been left what would happen with the remaining Yeezy inventory. Rumors began to float around the internet stating that Ye and adidas may have come to terms to sell the remaining product. Unfortunately, Bjorn Gulden did not give a clear answer during adidas's Q4 earnings call. During the call Gulden mentioned they could sell the remaining inventory as one extreme and “the other side is to say we burn it or we do whatever it takes then to destroy it, and it disappears, then you have another issue,” Gulden said, noting the sustainability concern. The third option Gulden raised was a more charitable route stating, “I think the goal that we have is to do what the probability is that it damages us the least and we do something good,” by possibly selling the remaining inventory and donating the proceeds.
Regardless of adidas's decision, the financial impact whether positive or negative will be significant. According to adidas's FY 2023 Outlook, "Should [they] irrevocably decide not to repurpose any of the existing Yeezy product, this would result in the write-off of the existing Yeezy inventory and would lower the operating profit by an additional around € 500 million this year.” Given the financial and social impact associated with the leftover Yeezy products, it makes sense that adidas has not yet decided on the best way to move forward.
While it seems as though adidas has already built in the financial hit of not selling the excess Yeezy inventory in its FY 2023 Outlook, one thing remains clear… its bet on creators like Bad Bunny, Beyonce’s Ivy Park, and even Pharrell’s Human Race line are not going to be enough to fill the void left by Ye’s departure. Regardless of what they decide to do with the Yeezys, they are going to need to find ways to regain their cultural cache. We’ll be sure to keep our eyes peeled on the situation over at adidas as it develops, so keep it locked to our Twitter and the Sole Retriever mobile app to stay updated on the latest happenings with adidas and more in the sneaker and streetwear world.