Adidas delivered further signs that its turnaround is gathering pace on Thursday as the sportswear giant sought to shift focus onto its strategy and away from its sell-down of remaining Yeezy shoes. The German company said it would slash its operating loss forecast to around EUR700 million this year, down from the previous estimate of a EUR1.2 billion loss. Adidas shares, up 1.8% by 1000 GMT, have gained 40% since the start of the year as investors bet on CEO Bjorn Gulden’s ability to reboot the brand after it cut ties with Yeezy designer Ye, the rapper previously known as Kanye West, over his antisemitic comments.
The sportswear giant raised prices in the third quarter and cut costs to boost margins. The result was that despite higher inventories, sales fell only slightly in currency-neutral terms, helping the firm narrow its projected full-year loss. That was a reassuring improvement after the company had been forced to slash its growth outlook for 2022 several times this year as it struggled with the Covid-19 pandemic, a weakened Chinese economy, and the impact of Yeezy sales.
Yeezy was responsible for more than half of the firm’s sales in the period, so the decision to halt production and sales has disproportionately impacted profits. The decision to halt the production and sale of the sneakers is also likely to cost the company at least EUR526 million in lost revenue. Disposing of the inventory, which has a market value of about EUR1.2 billion, will cost at least an additional EUR700 million.
While the loss of Yeezy has dented Adidas’ overall sales, the company still sees strong demand for some of its other products. Its partnership with rappers like Bad Bunny and Pharrell Williams has helped it connect with US street culture, while its football boots are gaining market share thanks to new partnerships with Italy and Jamaica’s national teams. In the running, the company’s Boost technology is finally gaining momentum thanks to a series of race podium wins by elite athletes.
Adidas’s new strategy is working, according to a top executive. “In the last two years, we have been focusing on an obvious strategy to rebuild and grow our business,” said Chief Commercial Officer Eric Liedtke. He added that the company’s decision to take out an entire management level in its marketing team had been one of its most significant changes, as it removed internal politics from responding to customer feedback or questions.
The company is now deciding what to do with the Yeezy inventory, with a plan expected to be announced next week. Options include donating the footwear, selling it, or even burning it. However, burning the shoes could damage the company’s reputation, while selling them off may not be easy or cost-effective. In addition, donating the shoes could carry a risk of being stolen by consumers, according to analysts.
