adidas AG (OTCQX:ADDYY) has improved its outlook for fiscal 2023 after dropping inventory for Yeezy, a collaboration between the German sports brand and Kanye West.
The Germany sportswear company said on Wednesday that it now expects currency-neutral “revenues to decline at a lower-single-digit rate”, impacted by the sell-off of inventory in North America.
The footwear and sports brand said currency-neutral sales are expected to fall at a lower-single-digit rate in 2023, after previously predicting sales would decline at a high mid-single digit rate.
"At the same time, macroeconomic challenges and geopolitical tensions persist," adidas said in a statement, adding that turnover will be impacted by its efforts to sell inventory.
"Elevated recession risks in North America and Europe as well as uncertainty around the recovery in Greater China continue to exist."
In October, the company adjusted its guidance to reflect its decision to drop Yeezy inventory. While previously, it had predicted breaking even in 2023, Adidas said it now expects underlying operating profit to hit €100 million for the year.
It anticipates a reported operating loss of about €100 million for the full year 2023, which is less than a quarter of the size of the loss previously predicted.
This follows the positive impact from dropping two Yeezy inventory sets, in the second and third quarter, for a total of €300 million. The potential write-off of the leftover Yeezy inventory is estimated to be a similar amount.
Chief Executive Officer Bjørn Gulden said: “Our own inventory levels are down 23%, which is even a little more than we planned. Inventory levels in the markets with our retail partners are also improving, although at a slower pace.
"Especially the inventory levels in the US market will continue to impact our business for a while.”
Sales in euros fell by 6% in the third quarter of 2023 to almost €6 billion, down from €6.4 billion last year, though currency-neutral quarterly revenues were up 1% in all regions except North America.
North American sales were hit even without currency effects, falling 9% that quarter, affected by “elevated inventory levels”, the sports company said.
Currency changes excluded, Adidas said footwear sales grew 6%, on the back of outdoor and basketball sales growth, but clothing turnover slumped by that amount as football clothing sales fell compared to its FIFA World Cup sell-in last year. Accessories revenue was also sluggish, dropping 3%.
These factors drove a 4% decrease in euro sales in the first nine months to €16.6 billion.
However, after shedding surplus stock, adidas's net income rose to €270 million in the third quarter, up from €66 million a year earlier.
Basic earnings per share from continuing operations were €1.40, an increase from €0.34 a year earlier.