Dive Brief:
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In part due to sluggish sales in North America, Adidas Q3 net sales fell 6.4% to 6 billion euros, or $6.4 billion at press time. Net income fell 20.5% to 280 million euros.
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The top-line number included 350 million euros in revenue from Yeezy sales in the quarter, “somewhat below” what Yeezy generated in Q3 2022, according to a company press release. Adidas is still projecting an operating loss for the year, but the number now sits at 100 million euros versus the 700 million euros predicted at the start of the year.
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About a year ago, Adidas severed ties with Ye, previously known as Kanye West, due to problematic behavior. But the brand has continued to sell Yeezy inventory this year, and executives said they’re not sure how they will handle the remaining stock.
Dive Insight:
Adidas CEO Bjørn Gulden on Wednesday tried to look past Q4, saying in a statement that the last months of the year will be dedicated to laying “the foundation for an improving 2024 and a successful 2025 and 2026.”
“To be very honest with you, for the story of Adi going forward, how are we performing in Q4 doesn't really matter,” he told analysts on a Wednesday morning conference call.
During the third quarter, the brand struggled in North America, where currency-neutral sales declined 9% (or 10% excluding Yeezy revenues in both years). The region was particularly affected by elevated inventory levels in the market, resulting in double-digit wholesale revenue declines, per the release. DTC sales in the region rose year over year, but executives said that two-thirds of the company’s business is in wholesale, and that its retail partners “are more important for us than DTC.”
Adidas is finally gearing up to release items from a collaboration with fashion designer Jerry Lorenzo’s Fear of God brand. The partnership has been plagued by delays in the last three years, said Gulden, who arrived at Adidas at the start of this year.
“The Fear of God thing I think is a good example of working with a partner and not having a clear setup of what is expected,” he said. “I think it's wrong expectations ...and actually a lot of misunderstandings of what it means to work on a performance product and then on a lifestyle product.”
If that tie-up is finally going right, the company is still grappling with how to handle another one that went wrong. No further Yeezy sales are planned for the holiday quarter, but that doesn’t necessarily preclude future sales, executives said. The company may write off 300 million euros of its remaining Yeezy inventory, but no decision on that has been made.
“We could easily have sold Yeezy in Q4 to look good,” Gulden said. “But it doesn't make any sense where we sitting, and I hope you agree with us that what we're trying to do is to build a business now, with brand heat, with performance and lifestyle products that we can extend for a longer period of time.”
