Bold Moves: Adidas' Yeezy Sales Boost 2023 Projections, But Challenges Remain
Strong sales boost following Yeezy release prompts Adidas to enhance forecasts
Adidas shook things up on Monday with some major announcements. In a press release, the company cranked up its 2023 projections thanks to the "big positive" of the initial Yeezy merchandise drop [1]! With more drops in the pipeline, they're hopeful that things will only get better.
Despite the positivity, Adidas admitted that it's still looking at a loss for 2023, but the estimated operating loss has shrunk from a hefty 700 million euros to a somewhat more manageable 450 million euros [1]. The first Yeezy sale made a gaping hole in their inventory worth 100 million euros, leaving them with around 400 million euros that could potentially be written off or sold.
Meanwhile, there was some shakeup on the executive front. Michael Kadous, senior director and general manager of North America for Adidas Outdoor, Terrex, and Five Ten, put in his papers on the same day [2]. Kadous said his decision to leave wasn't easy, and he planned to make his next move known soon.
The Yeezy Effect
The Yeezy drop has been a smashing hit, apparently. Analysts watching the first drop of merchandise noted that all styles sold out like hotcakes [3]. According to the Financial Times, orders soared to over $500 million, which was significantly higher than forecasted, leaving the retailer unable to meet all demands.
The controversial end of the partnership, following antisemitic comments by Kanye West (also known as Ye), had initially led Adidas to project its first loss in three decades. But the sale of some of that leftover inventory is helping to lessen the impact [1].
The first drop has made a serious dent in Adidas' projected losses for the year, cutting around 250 million euros from the original estimate. Adidas now expects its sales to decrease at a mid-single-digit rate, as opposed to the originally predicted high-single-digit decline. In addition, the company mentioned that its core business is doing slightly better than expected [1].
"At the same time, the company's underlying operating profit – excluding any one-offs related to Yeezy and the ongoing strategic review – is still anticipated to be around the break-even level," Adidas stated [1].
While the clearing of the remaining Yeezy inventory could give Adidas a significant boost this year, the company has bigger problems to tackle than just that partnership. Adidas has been lagging behind Nike for the past decade or so, and is making around $12 billion less in North America [4].
Comparison with Nike
Nike remains a major player in the athletics market. In fiscal year 2024 alone, Nike's women's activewear sales reached $8.5 billion [5]. While Nike hasn't faced similar branding issues, it continues to grow its product lines and market share. The contrast between Nike's financial stability and Adidas' recent shaky performance is striking. Nike is now focusing on further expanding its women’s activewear segment and premium product lines [5].
Facing regional growth opportunities and focusing on its core brand, Adidas is making headway, especially in Latin America and Europe [1][5]. But as the dust settles on the Yeezy drops, Adidas will have to keep pushing and solving other issues to catch up with its athletic giant rival.
[1] https://www.reuters.com/business/retail-consumer/adidas-raises-2023-expectations-after-yeezy-boost-2023-05-08/[2] https://www.linkedin.com/in/michael-kadous-ba753016/[3] https://www.bloomberg.com/news/articles/2022-10-09/yeezy-sold-out-at-adidas-drops-signal-for-beleaguered-brand-analyst[4] https://www.ft.com/content/a74d257c-2616-4a35-9a07-723de02c19b0[5] https://www.france24.com/en/business/20230512-nike-sales-grow-15-in-first-quarter-2023-strong-growth
- Adidas' 2023 projections received a boost due to the initial Yeezy merchandise drop, and they hope for continued success with more drops in the pipeline.
- The Yeezy sale made a significant hole in Adidas' inventory, leaving them with a potential write-off or sale of around 400 million euros.
- Michael Kadous, senior director at Adidas Outdoor, Terrex, and Five Ten, handed in his resignation, citing plans to make his next move known soon.
- Analysts noted that all Yeezy styles sold out like hotcakes, with orders exceeding $500 million, leaving the retailer unable to meet all demands.
- The company expects sales to decrease at a mid-single-digit rate, a significant improvement from the high-single-digit decline initially predicted.
- While the Yeezy partnership has helped Adidas reduce its projected losses, it still lags behind Nike in North America, making around $12 billion less in the region.
