Dive Brief:

• Adidas first quarter revenues declined 1% to approximately $5.8 billion (5.274 billion euros), and currency-neutral revenues were flat versus the prior year.
• The company’s initiatives to reduce high inventory levels, coupled with the discontinuation of its Yeezy line, represented a drag of around $440 million on the year-over-year comparison, which affected Europe, the Middle East, Africa, North America and Greater China.
• Footwear revenues grew 1% during the quarter, and accessories grew 8%, but apparel sales declined 3%, largely due to high inventory levels.

Dive Insight:

Leftover Yeezy stock continues to plague Adidas and ding revenues. There is still a surplus of unsold goods although the collaboration ended last fall after Ye, formerly known as Kanye West, made a series of antisemitic and racist remarks. Additionally, investors are suing, alleging Adidas knew about the risks associated with its Yeezy partnership before the news was widely known, causing a decline in the market value of its shares.

Adidas CEO Bjørn Gulden said on the earnings call, “The 20% sales decline in North America — down 5% excluding Yeezy — was in line with our conservative sell-in strategy due to the high levels of inventory and discounts in the market.”

While the company has not yet decided what to do with its Yeezy inventory, it said it expects a revenue loss of around $1.3 billion if it can’t unload the goods. Gulden added that sales growth excluding Yeezy was 9%.

“This was better than expected and makes us optimistic for the rest of the year,” said Gulden, who joined the company in January after spending a decade at rival Puma. He added that the decline in lifestyle and the loss of Yeezy “are of course hurting us.” But he also touted new collaborations with high profile names including Bad Bunny, Ronnie Fieg/Kith, Gucci and the newly announced Fear of God launch, which was teased in April and is expected to roll out more fully later this year.

 Gulden said inventories were still too high, but already $330 million lower than at the beginning of the year, and that he planned to normalize those inventory levels so Adidas could eventually lower discount levels, increase its full-price business and “rebuild brand heat again.”

“We just need some time,” he said. “2023 will be a bumpy year with disappointing numbers, where maximizing our short-term financial results is not our goal. It is a transition year to build a strong base for a better 2024 and a good 2025 and beyond.”