Adidas has acknowledged the detrimental impact of ending its collaboration with Kanye West, citing a significant decline in sales, particularly in North America. The sportswear giant severed ties with the renowned designer and rapper, known as Ye, in late 2022 due to his posting of anti-Semitic remarks on social media.

Adidas revealed that the loss of the Yeezy business resulted in a substantial €400m (£350m) reduction in sales during the first quarter of the current year. However, despite the overall revenue declining by 1%, the figures exceeded analysts’ expectations, and Adidas reported a 9% sales increase when excluding the impact of the Yeezy business.

The company stated that it is benefiting from the prevailing trend for “terrace” style trainers and is witnessing “extraordinary demand” for its Samba, Gazelle, and Campus brands. Terrace styles refer to footwear that was originally popular among football fans in the 1980s when supporters began embracing designer fashion brands like Fila and Sergio Tacchini.

Adidas admitted to having limited supply of such shoes at the beginning of the year but plans to ramp up production in the coming months. However, sales in North America suffered a 20% decline, primarily due to the discontinuation of the Yeezy business.

Adidas CEO Bjorn Gulden acknowledged that the loss of Yeezy is “undoubtedly hurting” the company. In October of the previous year, the company terminated its collaboration with West following the rapper’s anti-Semitic comments. Adidas stated, “Adidas does not tolerate antisemitism and any other sort of hate speech.”

Adidas disclosed that if it chooses not to repurpose its remaining unsold Yeezy stock, it would negatively impact operating profit by €500m this year. The company is yet to decide whether to sell or discard the remaining products.

Gulden mentioned that the company is narrowing down its options regarding the Yeezy stock and is getting closer to making a decision. Pippa Stephens, senior apparel analyst at GlobalData, emphasized the importance of Adidas making a swift decision regarding the remaining Yeezy stock to avoid further investor discontent and potential damage to the brand’s reputation.

Adidas is facing a lawsuit from investors who claim that the company was aware of Kanye West’s problematic behavior years before terminating their partnership. The investors allege that Adidas failed to limit financial losses and take precautionary measures to mitigate their exposure. Adidas responded by rejecting these claims and asserting that it would vigorously defend itself against them.

Despite the overall sales drop in the first quarter, Adidas reported an operating profit of €60m, surpassing expectations. Strong demand for its football, running, and tennis shoes contributed to a 1% growth in footwear revenues.

However, Gulden, who joined Adidas from rival Puma at the beginning of the year, cautioned that 2023 would be a challenging year with disappointing numbers. He also mentioned that Adidas aims to ensure that 50% of the products it sells in China are specifically designed for the Chinese market. While China is the world’s second-largest sportswear market, Adidas has been trailing behind its competitors there, experiencing a 9.4% decline in sales during the first three months of the year compared to the previous year.