Yeezy fallout could push Adidas into its first annual loss in 31 years

London CNN  — 

Adidas has warned that it could suffer its first annual operating loss in more than three decades this year, mostly because it may have to write off the entire range of Yeezy-branded clothing and sneakers.

The German sportswear maker said Wednesday that it would face an operating loss of €700 million ($736 million) this year— its first in 31 years — because of a potential €500 million ($527 million) hit related to unsold Yeezy stock, and the cost of a strategic review.

Shares in Adidas (ADDDF) fell 2.2% Wednesday morning after it published its 2022 results and outlook for 2023.

The company broke off its lucrative nine-year partnership with Yeezy designer Ye, the rapper formerly known as Kanye West, in October.

Adidas said last month that its annual revenue could plunge by €1.2 billion ($1.27 billion) this year as a direct result of the split, which came after Ye made a series of antisemitic remarks.

The rupture knocked around €600 million ($633 million) off the company’s fourth-quarter revenue, Adidas said Wednesday.

But the controversy has appeared to fuel demand for Yeezy sneakers through other sellers. Last week, John Mocadlo, chief executive of Impossible Kicks, a large online reseller of high-end sneakers and clothing, said demand for the shoes had surged 30% since around last October.

Adidas could perform better this year if it “repurposes” some of its Yeezy products, the company said without elaborating.

‘Year of transition’

The gloomy outlook for Adidas follows what Chief Financial Officer Harm Ohlmeyer called a “disappointing year” for the German giant.

“We definitely did not perform as we should have performed,” he said when presenting the company’s results Wednesday.

Its operating profit fell 66% year-over-year to €669 million ($705 million).

While the company’s global sales grew 1% last year, it saw a 36% annual sales decline in China — its biggest single market — due partly to the nation’s now-ditched zero-Covid policy.

Adidas is hoping this year will mark a turning point.

“2023 will be a year of transition to set the base to again be a growing and profitable company,” Chief Executive Officer Bjørn Gulden said in a statement last month.

“I am convinced that over time we will make Adidas shine again. But we need some time.”

Olesya Dmitracova contributed reporting.

Source: CNN