FRANKFURT, Germany -- Adidas saw operating earnings dwindle in the first three months of the year as the German sportswear company's breakup with the rapper formerly known as Kanye West and his popular Yeezy shoe brand cost it 400 million euros ($441 million) in lost sales.
The company is stuck with 1.2 billion euros ($1.3 billion) worth of unsold Yeezy shoes after cutting ties in October with the rapper now known as Ye over his antisemitic and other offensive comments on social media and in interviews.
Adidas was “getting closer and closer to making a decision” on what do to with the sneakers stacked up in warehouses and “options are narrowing,” new CEO Bjorn Gulden said Friday in a conference call. But with “so many interested parties” involved in the discussions, no decision had yet been reached, he said.
Gulden declined to say if destroying the shoes had been ruled out, but the company was “trying to avoid that.” He has previously said that other options have drawbacks: from paying royalties to Ye to sell the sneakers, peddling dishonesty if the shoes are restitched, and expected resales if they're given away to people in need because of their high market value.
Losing the Yeezy brand is “of course hurting us,” Gulden said in a statement. The breakup will reduce earnings by 500 million euros this year if Adidas decides not to sell its remaining Yeezy stock, the Herzogenaurach-based company said.
Profit was down to 60 million euros in the first quarter from 437 million euros in the same period a year ago. Net sales declined 1%, to 5.27 billion euros, and would have risen 9% with the Yeezy line, the company said Friday.
Gulden said the results for the Adidas were “a little better than we had expected” as the company seeks to restart growth and move beyond the breakup with Ye. He called 2023 “a year of transition” on the way to “a better ’24 and a good ’25.”
The company also faces other problems tied to Ye. Investors sued Adidas a week ago in the U.S., alleging the company knew about Ye's offensive remarks and harmful behavior years before the split and failed to take precautionary measures to limit financial losses.
The lawsuit — representing people who bought Adidas securities between May 3, 2018, and February 21, 2023 — pointed to 2018 comments where Ye suggested slavery was a “choice” and reports of Ye making antisemitic statements in front of Adidas staff.
The company said last week that it rejected “these unfounded claims and will take all necessary measures to vigorously defend ourselves against them.”
Ending the Ye partnership also cost Adidas 600 million euros in lost sales in the last three months of 2022, helping drive the company to a net loss of 513 million euros.
An operating loss of 700 million euros is possible this year, Adidas said, mostly due to the 500 million-euro hit it would take if it doesn't sell the existing Yeezy shoes.
