Adidas expects bumpy year despite forecast-beating sales

Losing the highly profitable Yeezy line hit sales in the quarter by around 400 million euros, Adidas said, mainly denting revenue across North America, Greater China and EMEA. Adidas gave no update on what it plans to do with its stock of unsold Yeezy shoes.

Adidas shares rose on Friday after better-than-expected first-quarter results, although CEO Bjorn Gulden forecast "a bumpy year with disappointing numbers" for the German sportswear giant. Despite a 1% sales drop, operating profit of 60 million euros ($66 million) beat analyst expectations of 15 million euros for the company which last year ended a partnership with Ye, the rapper formerly known as Kanye West.

Adidas shares gained 5.5% at the open. Losing the highly profitable Yeezy line hit sales in the quarter by around 400 million euros, Adidas said, mainly denting revenue across North America, Greater China and EMEA.

Adidas gave no update on what it plans to do with its stock of unsold Yeezy shoes. "The decline in Lifestyle and the loss of Yeezy are of course hurting us," said Adidas CEO Bjorn Gulden. "But also here we see some positive developments."

Gulden said Adidas was sticking to its guidance for 2023, having warned of a 700 million euro operating loss if it decides to completely write off the Yeezy stock. "New CEO Bjorn Gulden has a lot to deal with, across most major aspects of adidas' business model including corporate culture, product ranges, Yeezy exit and market positioning that has weakened in recent years," Royal Bank of Canada analyst Piral Dadhania said in a note.

Gulden said the Adidas "terrace" shoe style is doing well in all markets, and the company has started to make more Samba, Gazelle, and Campus shoes. Overall, sales were 5.274 billion euros, down from 5.302 billion euros in the first quarter of 2022. Analysts expected sales to fall by 4%, according to consensus estimates compiled by Adidas.

North America was the worst hit by the Yeezy debacle, with currency-neutral sales down 20% from last year. Sales in Greater China, a difficult region for Adidas, fell by 9%, while EMEA sales rose 4%. Latin America was a bright spot with sales jumping by 49%. Adidas' gross margin fell to 44.8% due to the loss of Yeezy sales, higher supply chain costs and discounts.

Inventories rose by 25% to 5.675 billion euros, and Gulden said Adidas is working hard to "normalise" inventory levels, which would allow it to discount less and boost the brand. ($1 = 0.9062 euros)