Adidas' path to recovery

Adidas AG is grappling with a mountain of unsold Yeezy sneakers and apparel worth €1.2 billion, stemming from a cancelled collaboration with rapper and designer Ye, formerly known as Kanye West.

The German sneaker maker is still reviewing its options for the merchandise, which could have a significant impact on its financial performance this year. However, new CEO Bjorn Gulden remains optimistic about the company's turnaround prospects, despite the challenges.

Financial Performance

According to a statement released on Friday, Adidas reported sales of €5.3 billion in the first quarter of this year, roughly in line with a year ago and ahead of analysts' estimates. The company's business was stronger in Latin America and parts of Asia, while it is ramping up production of classic sneakers like the Samba, Gazelle, and Campus to meet high demand. However, the company still expects to post a loss of €700 million this year if it can't sell the Yeezy products.

Operations and Production

Adidas is making headway in improving operations and relations with suppliers and retailers, but it still has a long way to go to reduce its inventory of unsold sneakers and apparel. While the stockpiles have decreased from late December, they are still too high for the company to rebuild its brand momentum. To address this issue, Adidas plans to implement more markdowns and scale up production for hot-selling sneakers like the Samba.

Future Plans

Gulden is focused on building a strong base for a better 2024 and beyond, rather than maximizing short-term financial results. He is renewing the company's focus on performance sports and working to speed up decision-making, including installing himself as the head of global brands. Gulden's leadership at cross-town rival Puma SE, where he roughly tripled sales and posted fast growth during the pandemic, is seen as a positive indicator for Adidas' prospects.