Adidas CEO Says 2023 Will Be A Rebuilding Year, Projecting $1.3 Billion Loss On Yeezy Termination

Adidas fourth-quarter sales were materially impacted by the decision to end its Yeezy partnership in October. 

“This development reflects the negative impact of around €600 million($632 million) related to the company’s decision to terminate the Yeezy partnership at the end of October,” adidas said in a press release. 

Overall, sales were down 1% in the fourth quarter, a noticeable dip from the 4% revenue growth it saw in the third quarter. 

North American sales still grew 6% in Q4 amid the discontinuation of the Yeezy partnership, a decision the compnay says had a powerful impact on this market.

In addition to the hit it took on Yeezy, adidas said it saw a substantial revenue decline in Greater China, experiencing a 50% drop in sales in the fourth quarter “due to the challenging market environment, company-specific challenges as well as significant inventory takebacks.” 

CEO Bjørn Gulden admitted that 2023 would be a rebuilding year.

Amid its company-specific challenges, macroeconomic factors continue to weigh on the company as it faces a heavily promotional environment and significantly higher supply chain costs.

“2023 will be a transition year to build the base for 2024 and 2025,” he said in the release.

“We need to reduce inventories and lower discounts. We can then start to build a profitable business again in 2024.”

Part of its inventory includes existing Yeezy products, which has prompted broad speculation on how the company handles its existing inventory.

Adidas offered no definitive answers but built its Yeezy write-off into its full-year 2023 guidance and is now expected to break even this year. 

“While the company continues to review future options for utilizing its Yeezy inventory, the guidance already reflects the revenue loss of around €1.2 billion($1.26 billion) from potentially not selling the existing stock," the company said.

“Should the company irrevocably decide not to repurpose any of the existing Yeezy product going forward, this would result in the potential write-off of the existing Yeezy inventory and would lower the company’s operating profit by an additional €500 million($526 million) this year. In addition, adidas expects one-off costs of up to €200 million($210 million) in 2023,” adidas said regarding its Yeezy line. 

“These costs are part of a strategic review the company is currently conducting aimed at reigniting profitable growth as of 2024. If all these effects were to materialize, the company expects to report an operating loss of €700 million($738 million) in 2023.”

Gulden, who took over the company on January 1st after leaving rival Puma, says adidas must return to its core: product, consumers, retail partners, and athletes.

“We will work on strengthening our people and the adidas culture. Motivated people and a strong adidas culture are the most important factors to build a unique adidas business model again,” Gulden said.

“We will bring it back to be the best sports brand in the world once again.”