Adidas faces financial setback following Yeezy fallout and declining US sales

Adidas experienced a rare annual loss due to various factors. These include the consequences of ending its partnership with rapper Ye, declining sales in North America, and a significant increase in tax expenses.

The sportswear company from Germany reported a net loss of €58 million ($63 million) in its main business for the year 2023. This was mainly caused by a decrease in revenue from the sales of Yeezy-branded apparel and footwear, along with a notable rise in its tax obligations.

"We had a tough year in 2023," shared chief financial officer Harm Ohlmeyer with journalists on Wednesday.

Adidas shares dropped nearly 4% at the beginning of trading, but managed to recover most of those losses by 9:40 a.m. ET.

A fashion week guest seen wearing red Adidas Yeezy shoes during London Fashion Week in September 2022.

A fashion week guest seen wearing red Adidas Yeezy shoes during London Fashion Week in September 2022.

Jeremy Moeller/Getty Images

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Adidas is releasing more Yeezy shoes in a second wave. In October 2022, Adidas ended its partnership with Yeezy designer Ye, also known as Kanye West, due to his series of anti-semitic comments.

Adidas is selling its remaining Yeezy stock and plans to donate a significant amount to selected organizations fighting discrimination, including racism and antisemitism.

The 2023 tax burden was higher compared to the previous year, but the company anticipates a decrease in earnings pressure in the future.

Adidas stated that they anticipate the tax rate to return to normal as their operating profit increases. In 2023, sales in North America, which is the company's second-largest market, dropped by over 16%. This was due in part to Adidas cutting back on sales to wholesalers to help decrease their excessive inventory levels. The company is projecting another decline in sales in the region this year, expecting it to decrease by approximately 5%.

"It's tough for European brands to compete with American brands in the US," company CEO Bjørn Gulden shared with journalists. He emphasized the need for Adidas to invest more in sports like baseball and basketball to gain popularity among American consumers.

On a brighter note, the company is experiencing positive results elsewhere. Sales in China, its third-largest market, increased by over 8% last year. In the final three months of 2023, sales surged by nearly 37% compared to the same period in 2022. The company is optimistic about achieving double-digit growth in China this year.

Sales of Adidas footwear worldwide, including the trendy Samba and Gazelle sneakers, increased by 4%. In comparison, sales of Adidas apparel decreased by 6%.

In terms of earnings, Adidas reported an operating profit of €268 million ($293 million) in the previous year. However, this was a significant drop of nearly 60% from the earnings in 2022.

Olesya Dmitracova contributed to this article.

Editor's P/S:

Adidas' financial struggles are a stark reminder of the challenges facing global brands in the current economic climate. The company's decision to end its partnership with Ye, coupled with declining sales in North America and rising tax expenses, has left a significant impact on its bottom line. The loss of revenue from Yeezy-branded products, once a major contributor to Adidas' success, has been particularly damaging.

Despite these challenges, Adidas remains optimistic about its future prospects. The company's strong performance in China, along with positive sales of its core footwear products, provides a glimmer of hope. However, to regain its financial footing, Adidas will need to address the issues that have led to its decline in North America and find innovative ways to differentiate itself from its competitors. The company's plans to invest more in sports like baseball and basketball in the US could be a step in the right direction, but it remains to be seen whether this will be enough to reverse its fortunes in the region.