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Adidas shares are increased after slashing the failure forecast on robust Yeezy inventory deals

July 26, 2023: On Monday, German sportswear giant Adidas said it expects a significantly smaller working loss for the year after recording better-than-expected early sales of its Yeezy stock, which it is offloading after cutting ties with group creator Ye.

Shares of Adidas were 6.3% higher at 10:22 a.m. BST Tuesday after the company said its possible write-off from remaining inventory was now €400 million, down from €500 million, as it trimmed its operating loss forecast for 2023 to €450 million from €700 million.

The company also reported a slight outperformance in the underlying Adidas business. It expects underlying operational profit, excluding one-offs related to Yeezy and a more comprehensive ongoing strategic review, to break even for the year.

“If successful, potential future Yeezy drops would further improve the company’s results,” Adidas stated in a statement, referring to further releases of existing inventory.

Adidas’s second-quarter results showed a drop in operating profit to €176 million from €392 million, while revenue was 5% lower on a euro basis.

“The key takeaway here is the remarkable markup that Yeezy still commands,” analysts at Jefferies said in a note, estimating the €100 million inventory reduction added €450 million to Adidas’s top line and boosted sales by 8%.

Adidas ended its partnership with musician Ye, formerly Kanye West, in October 2022 after he made a string of offensive and antisemitic comments. After several weeks of criticism online, Adidas called Ye’s remarks “unacceptable, evil, and dangerous.” It said it would end the production of Yeezy branded products, which include footwear and clothing, and stop all charges to Ye and his companies.

That left the question of what the company would do with its existing Yeezy stock.

In May, Adidas announced it would market the inventory and donate a “significant amount” of the proceeds to groups, including the Anti-Defamation League and the Philonise and Keeta Floyd Institute for Social Change.

Adidas signed a deal to fabricate and distribute items from the Yeezy clothing line in 2016, with the brand expanding to bring in nearly $2 billion a year for the company, 10% of its income, according to Morningstar analyst David Swartz.

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