ADS Adidas AG

By Joshua Kirby

Adidas AG will continue to make royalty payments to designer and musician Kanye West if it decides to sell its remaining Yeezy sneakers, Chief Executive Officer Bjorn Gulden said, as the sportswear giant continues to consider its options for the high-value leftover inventory.

Mr. Gulden said the group hasn't yet reached a decision on what to do with remaining Yeezy sneakers produced before its split last year with Mr. West, who goes by Ye.

Germany's Adidas previously said writing off the inventory would result in a hit to operating earnings of around 500 million euros ($527.4 million) this year, adding to the loss of some EUR600 million in revenue booked in the last three months of 2022.

Adidas in October ended its collaboration with Ye, under which it produced his popular and lucrative Yeezy line, following a series of controversies including antisemitic comments made by the rapper.

But writing off the stock could raise sustainability as well as financial concerns, Mr. Gulden said in a conference call following the group's 2022 update. Destroying the sneakers by burning them would be an environmental problem, he said. Yeezy's strong brand appeal meanwhile make the products much more valuable than their material components, he said.

This complicates suggestions for the footwear to be donated to, for example, the victims of the recent earthquake in Turkey and Syria, Mr. Gulden said.

If Adidas decides instead to sell the remaining Yeezys, it would be obliged to continue to pay royalties to Ye, Mr. Gulden said. Adidas would be unlikely to make any profit in that eventuality, he said, but would look to cover its costs, which include logistics expenses as well as payments to Ye.

Selling the sneakers under a different branding and label is not an option, he said.

"We are a company that holds true to contracts," finance chief Harm Ohlmeyer added.

Donations could also be made from sales to groups affected by Ye's comments, Mr. Gulden said, adding however that the company's isn't currently in negotiations over a potential sale of the inventory.

Adidas previously said it expects to reach underlying breakeven, roughly, in its 2023 operating result. The guided operating loss of EUR700 million includes EUR200 million in one-off costs relating to a strategic turnaround after last year's travails, Mr. Ohlmeyer said, as well as the hit from a potential Yeezy writeoff.

Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby

(END) Dow Jones Newswires

March 08, 2023 06:59 ET (11:59 GMT)

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