Adidas on Monday raised its full-year guidance, citing tailwinds from its decision to start selling Yeezy merchandise again after parting with Yeezy head Kanye West and his brand in October in light of repeated antisemitic statements.
The German sportswear retailer on Monday reported preliminary results for the second quarter, noting that revenues and profits were “positively impacted” by its decision to begin selling some Yeezy inventory, a move Adidas announced in May.
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At the time, Adidas said it would donate a “significant” portion of proceeds to organizations representing people who “were hurt” by Kanye West’s comments and behaviors. The announcement came after Adidas weighed a variety of options for what to do with the leftover $1.3 billion (or 1.2 billion euros) worth of Yeezy product, which was projected to yield a potential € 500 million (or $537 million) hit to operating profit.
Including the recent Yeezy sales, Adidas said it now expects loss related to Yeezy inventory to cost the company closer to € 400 million, down from the previously outlined € 500 million. Total one-off costs this year are still expected to total € 200 million, as previously expected, which translates to a total projected operating loss of € 450 million in 2023, down from the previously expected € 700 million.
Adidas said strong Yeezy drops in the future could be a tailwind to results moving forward.
As a result of the progress, Adidas updated its guidance for 2023 and now expects revenues to decline at a mid-single-digit rate in 2023, a boost from its prior guidance of declining at a high-single-digit rate. Operating profit, excluding Yeezy impact, is expected to break even.
More broadly, Adidas said Q2 revenues were flat versus the prior year level in currency-neutral terms, but declined 5 percent in euro terms to € 5.343 billion. Q2 gross margin was up 0.6 percentage points to 50.9 percent. Adidas said its business outside of Yeezy also exceeded expectations in Q2.
The news comes on the heels of a report in the Financial Times, which noted that Adidas received customer orders worth more than €508 million (or more than $563 million at current exchange) in its first Yeezy sale. This accounted for 4 million pairs of sneakers sold by June 2, though net sales were reportedly lower than the prior mentioned total. The report noted that demand was so high that Adidas could not fill every order.
In a note to investors last month, Wedbush analyst Tom Nikic shared that Adidas’ recent Yeezy launches had sold out quickly, with many reselling for premiums on the resale market. The launches referenced included 12 pairs of shoes that sold through a two-day period starting in late May.
“It appears as though consumer demand for these products still exist, so at the very least, Adidas should be able to sell through the inventory that was already in place when they terminated the partnership with Mr. West,” Nikic wrote, adding that while the total number of pairs was relatively low, the strong response suggests that “demand for the Yeezy products has not been impaired.”
Adidas reports earnings for the second quarter on Aug. 3.
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