FRANKFURT, Germany — Adidas' breakup with Ye,the rapper formerly known as Kanye West, and the inability to sell his popular Yeezy line of shoes helped batter earnings at the end of last year, leading to a net loss of 513 million euros ($540 million).
The fourth-quarter loss, also attributed to higher supply costs and slumping revenue in China, contrasts with a profit of roughly $225 million in the same period a year ago, the German shoe and sportswear maker said Wednesday.
More losses could be ahead as the company forecast a roughly$535 million hit to earnings this year if it decides not to repurpose the remaining Yeezy products it has in stock. The company is predicting a 2023 operating loss of nearly $750million.
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Why did Adidas drop Yeezy?
Adidas split with Ye in October following the rapper's antisemitic remarks on social media and in interviews, facing pressure along with other brands to end ties. The company is now grappling to find ways to replace its banner Yeezy line, which analysts have said amounted to as much as 15% of its net income.
CEO Bjorn Gulden said in a statement that 2023 would be "a transition year" and "we can then start to build a profitable business again in 2024."
"Adidas has all the ingredients to be successful,"Gulden said."But we need to put our focus back on our core: product, consumers, retail partners, and athletes. "
Adidas first partnered with Ye in 2013andcemented the creative relationship in 2016with what the company described as the "most significant partnership ever created between a non-athlete and an athletic brand."
After ending the partnership last year,Adidas said it wouldtry to sell the products without the Yeezy name and branding.
Adidas in February saidit could lose $1.3 billionin revenue this year if it couldn’t repurpose the merchandise. The company is still deciding what to do with the inventory.
Adidas"faces a difficult choice, as selling the stock could damage its brand perception even further, and not selling it will have a disastrous effect on profit,"Chloe Collins, head of apparel at GlobalData, said in a statement.
Fourth-quarter net sales were up a bare 1.3% at about $5.5 billionfrom the same quarter a year ago, held back by around $633 million inlost revenue by the decision to halt the partnership with Ye.
China slump
The company also cited a revenue drop in China of about 50% and higher costs for supplies and shipping, which could not be offset by higher prices.
For the full year, the Herzogenaurach, Germany-based company said it made net profit of $673 million on sales that rose 6%, to $23.7 billion.
The company also said it would be replacing its top sales and marketing executives. Global sales head Roland Auschel will leave the company after 33 years and be succeeded by Arthur Hoeld, now head of the Europe, Middle East and Africa region.
Brian Grevy, head of global brands, will step down March 31. CEO Gulden will take responsibility for his product and marketing activities.
