Home Business Adidas decides not to write off its remaining Yeezy inventory as CEO warns of potential $850m profit shortfall

Adidas decides not to write off its remaining Yeezy inventory as CEO warns of potential $850m profit shortfall

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Adidas decides not to write off its remaining Yeezy inventory as CEO warns of potential $850m profit shortfall

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Adidas has been grappling with a major Yeezy problem since October 2022 following its split with Kanye West over anti-semitic remarks.

Initially, the German sportswear giant considered burning its leftover Yeezys after ending the partnership then shifted to selling them, pledging proceeds to charity.

In August 2023, plans surfaced to donate €110 million ($119 million) from the Yeezy sales to charities that had been “hurt” by West’s statements.

However, by November, Adidas contemplated writing off the $290 million-worth Yeezy inventory, a move deemed the “worst case” by CEO Bjørn Gulden.

Now Adidas has announced it will sell its remaining Yeezy sneakers “at least at cost,” aiming to mitigate the financial blow from the severed partnership.

“Our consumer, retail and trade research has shown that we can sell this remaining inventory in 2024 for at least the cost price. This is why we have only written off inventory that was either damaged or very broken in sizes,” Adidas CEO Bjørn Gulden said in a statement Wednesday

It’s unclear what the decision to sell Yeezys for “at least the cost price” would mean for donations or if Adidas expects to make a profit.

When asked by Fortune what Adidas plans to do with the money made from the sale of Yeezys in 2024, the company declined to comment. 

Adidas said in its press release that the assumption that it would sell the sneakers at cost had been factored into the operating profit estimate for the year. 

Profit warnings for Adidas

Adidas reported in preliminary results released Wednesday that in 2023, the company made an operating profit of €268 million ($290 million), which is down 60% from 2022’s figures.

Factors like foreign exchange fluctuations and muted sports apparel demand, some of which has impacted rivals like Puma, continued to weigh on Adidas’s performance.

“Fashions come and go and there is a danger the whole athleisure trend of wearing almost indistinguishable outfits for the gym, relaxing at home and socialising, so helpful to sportswear firms and retailers, has begun to wane,” Russ Mould from U.K.-based investment platform said in a note Thursday. 

For the current year, Adidas expects to nearly double 2023 profits to €500 million—but that’s barely half of the average analyst estimate of €1.3 billion.   

Adidas’s shares were down about 5% at noon GMT.

Not Yeezy to get rid of

The Yeezy crisis has been far from easy for Adidas.

The infamous collaboration with West, which began at the helm of his music career, helped the company’s bottom line and catapulted it to new heights.

What was initially seen as a genius marketing move went awry after hateful comments from the rapper led Adidas to follow a slew of other brands like Gap and Balenciaga that walked away from West. T

he end of Adidas’s collaboration with the rapper warranted reactions from investors and employees, and CEO Gulden is continuing to overhaul the company.  

“Some of Adidas’ problems are of its own making. Its association with Kanye West… has backfired. Celebrity endorsements are all well and good but going too deep is fraught with risk given anybody you partner up with is human and therefore inherently unpredictable,” Mould added. 

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