(Bloomberg) -- Adidas AG will make less of a loss than expected this year after starting to sell its inventory of Yeezy sneakers from a canceled partnership with the rapper and designer Kanye West.
The German sports company expects to report an operating loss of €450 million ($499 million) in 2023, it said in a statement on Monday. That's based on its initial batch of Yeezy product sales, and future Yeezy drops could further improve the company's results, it said.
Adidas previously warned that it could post an operating loss of €700 million if it had to write off all existing Yeezy inventory.
The rest of Adidas's business is also performing better than expected, with full-year sales now expected to decline at a mid-single-digit rate, compared to previous guidance of a high-single-digit rate decline, the company said.
Second-quarter sales were €5.34 billion, beating the €5.05 billion average estimate from analysts in a Bloomberg survey.
Adidas' better-than-expected 2Q results, with currency-neutral sales flat vs. consensus' mid-single-digit decline, along with raised full-year 2023 guidance, is evidence to us that the company's turnaround efforts have begun in earnest. Improved gross margin (up 60 bps to 50.9%) stood out to us, as sales from potential future Yeezy drops could keep helping reduce write-off drag.
Poonam Goyal, BI senior retail analyst
Chief Executive Officer Bjorn Gulden, who took over in January, has a history of offering conservative financial targets early in the year and outperforming them. Gulden did that repeatedly during his nearly decade-long tenure as CEO of Puma SE, which he left late last year.
After shocking investors in February with Adidas's targets for the year, Gulden has since offered plenty of reasons for optimism, from initial signs of a rebound in demand in China to the company ramping up production of its classic Samba sneakers to meet high demand.
Yet the main unanswered question for months was the Yeezy inventory. Adidas terminated its collaboration agreement in October after West made a series of antisemitic remarks, leaving about €1.2 billion worth of sneakers in limbo.
Read More: Adidas Races to Fix Its Billion-Dollar, Yeezy-Shaped Hole
In May, Adidas said it would begin selling its pile of Yeezy shoes left over from its defunct partnership with West, who now goes by Ye. The company has pledged to donate a “significant amount” of the proceeds to charities that work to fight discrimination and hate speech.
The potential write-off of the remaining Yeezy inventory is now €400 million, Adidas said. Before the recent Yeezy sales, that figure was €500 million.
(Updates with information throughout)
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