- Adidas doesn't know what to do with its mountain of Yeezy stock.
- The company estimates this inventory would cost it $1.3 billion in sales.
- Experts say Adidas is in a lose-lose situation with no clear path out.
It's been six months since Adidas severed ties with Kanye West, but it still doesn't know what to do with the mountain of unsold Yeezy inventory that was in its wake.
In a statement alongside its first quarter earnings release on Friday, Adidas Bjørn Gulden said that the loss of its Yeezy partnership is continuing to "hurt" the company. Sales in North America, its core market for Yeezy, dropped by 20% during the quarter.
The company cut ties with Ye, formerly known as Kanye West, in October after a string of controversies, including numerous antisemitic comments.
Adidas said it has already factored a 1.2 billion euro ($1.3 billion), sales loss into its annual guidance if it were not to sell the stock. It expects to take a 500 million euro ($552 million) hit on profits because of this.
But Gulden reiterated sentiments that were shared in its fourth-quarter earnings call in March on Friday — namely that Adidas still has no plan of action in place to handle the issue.
HSBC analyst Erwan Rambourg laid out Adidas' dilemma in a question directed at Gulden during the March earnings call.
"You cannot sell Yeezy for reputational risk reasons. And at the same time, you can't destroy the product for the planet. So, I'm just wondering what options do you have?" Rambourg said.
Gulden was quick to admit that he didn't have the answer.
"We could sell the product at cost ... We could sell it with a small margin and give the margin away for different donations ... The goal that we have is to do what the probability is that it damages us the least, and that we do something good," he said.
He told analysts that he has been presented with around 500 different business proposals from people who want to buy the stock. "But again, that will not necessarily be the right thing to do so," he said.
And, donating to charity isn't as straightforward as it seems. The value associated with Yeezy products means these items could end up in the wrong hands and be resold on secondhand platforms for a profit.
Experts say that way around this could be to deface these products before donation to curb their resale value, though it would cost Adidas more.
"This looks like a no-win situation for Adidas, and a reminder of mama's caution to be careful who you associate with," Dion Kenney, COO of e-commerce platform Mondofora, wrote in a discussion post on RetailWire.