Adidas (ticker: ADDY) has exceeded profit projections and raised its sales forecast for the current fiscal year, thanks to the success of the Yeezy collection.
The sportswear company reported an operating profit of €176 million ($192.3 million), surpassing analyst expectations of €65.4 million. Sales reached €5.34 billion, slightly higher than the projected €5.27 billion and comparable to the previous year’s figures.
The Yeezy collaboration with rapper Ye played a significant role in boosting sales. According to Adidas (ticker: ADDYY), Yeezy sneakers alone contributed nearly €400 million to the company’s top line, resulting in an additional €150 million to the bottom line.
Last fall, Adidas ended its partnership with Ye (formerly known as Kanye West) due to a series of anti-Semitic social media posts. However, in late May, the company announced plans to sell the remaining shoes from the Yeezy inventory.
“The sale of the first part of the Yeezy inventory did of course help both our top and bottom line in the quarter,” stated CEO Bjørn Gulden in a press release.
The strong demand for Yeezy products prompted Adidas to revise its full-year financial forecasts. The company now anticipates a mid-single-digit decline in revenue for 2023, compared to a previously projected decline in the high single digits. Additionally, Adidas expects an operating loss of €450 million, an improvement from the earlier estimate of €700 million.
Adidas Boosts Inventory Through Yeezy Release
Adidas has launched a second drop of Yeezy inventory, available online, which is expected to enhance the company’s results. However, this improvement is not reflected in Adidas’ current outlook for 2023.
Instead of destroying excess inventory, Adidas has made a conscious decision to sell it off, allowing the company to make significant donations to organizations fighting against anti-Semitism. Additionally, this strategy positively impacts both Adidas’ cash flow and overall financial strength.
While the Yeezy business continues to thrive, Adidas reported a moderately mixed quarter outside of this segment. Footwear revenue experienced a 1% growth compared to the previous year, whereas apparel sales declined by 3%. Despite witnessing double-digit growth in China and Latin America, currency-neutral wholesale sales dropped by 10%.
Gross margins showed improvement, increasing by 0.6 percentage points to reach 50.9%, mainly driven by price increases. Furthermore, Adidas managed to address its past challenge of high inventory levels. Compared to the prior year, inventories saw a 6% increase.
As a result of these developments, shares of Adidas rose by 1% to €180.42 in early afternoon trading in Europe. Similarly, the company’s U.S. listed shares experienced a modest increase of 0.8% up to $98.68.