Yeezy still weighs heavy on Adidas as the sportswear company faces its first loss in 30 years—but 2024 could finally offer some respite

Yeezys have gone from Adidas’s dream partnership to a financial nightmare in the last few years, and their ghost (or rather, excess stock) continues to haunt the German sports brand.

Adidas has had a challenging 12 months reeling from its severed partnership with rapper Kanye West, who launched Yeezys back in 2015.

It posted its first net loss in over 30 years for 2023, while CEO Bjørn Gulden tries to get the company back on track.

The loss of €58 million ($63.4 million) last year compared to a net income of  €254 million ($277.61 million) in 2022, marking Adidas’s first annual net loss since 1992, according to Reuters. Adidas also attributed this decline to the impact of rising tax rates.

“Although by far not good enough, 2023 ended better than what I had expected at the beginning of the year,” CEO Gulden, who’s been in the job since the start of 2023, said in a statement Wednesday.

“Despite losing a lot of Yeezy revenue and a very conservative sell-in strategy, we managed to have flat revenues,” he said, adding that although he expected a significant drop in operating results, Adidas still managed to pull in an operating profit of €268 million ($293 million).

The financial blow of the not-so-easy Yeezy break-up, along with factors like foreign exchange fluctuations and subdued sportswear demand, resulted in an overall 60% drop in operating profits compared to 2022 levels. That’s nearly €1 billion better than what was previously expected, but still points to the pain Adidas faces in getting through its inventory of Yeezys.

The Yeezy tightrope

The company faces a combination of other problems, too—in North America, its second-largest market, Adidas expects sales to fall in 2024 due to a stock glut, while it continues to shed its Yeezys. Late last month, Adidas announced the launch of a fresh tranche of the sneakers.

In January, when the sportswear giant released preliminary results, it said it’d sell its remaining Yeezys “at least at cost” to get rid of excess stock without writing them off. It was a tough call to make for Adidas as it wanted to distance itself from the controversy-laden collaboration with West following his antisemitic remarks in 2022.

At the same time, the line of sneakers have been incredibly lucrative for Adidas—even months after it divorced from West. Yeezy sneakers made Adidas €750 million ($819 million) in revenue in the second and third quarter of 2023, Adidas said. The German company also earmarked millions in donations to organizations fighting causes like antisemitism and racism.

It expects operating profit to hit €500 million ($547 million) this year, despite its stockpile of Yeezy being sold at cost.

“It is a little surprising that 2024 guidance is not improved from the prior €0.5bn given a first Yeezy drop in March does not appear to be happening at cost,” Jefferies analysts said in a note Wednesday, adding that the focus for the next few months will be on seeing how quickly Adidas’s sales momentum picks up.

Gulden ruled out the chances of a renewal in Adidas's partnership with the rapper during a conference Wednesday, Bloomberg reported.

“The contract has ended,” Gulden said. “We are selling off the inventory.”

What’s working for Adidas

On the bright side, some of Adidas’s other footwear models have been soaring in popularity. For instance, the brand’s Samba and Gazelle shoes have helped prop up its footwear and apparel segments’ performance in 2023.

Although the company’s net loss in 2023 was significant, Adidas said its board would maintain a dividend of €0.70 per share.

"Things have clearly been going in the right direction at Adidas since Bjorn Gulden took over," Thomas Joekel, portfolio manager at Union Investment, told Reuters. "Brand heat is increasing, which can also be seen from the fact that fewer products now have to be sold at a discount."

Deutsche Bank analysts highlighted that the current year will mark an ongoing transition for Adidas, but points to a “recovery in industry dynamics.”

“We still have a lot of work to do, but I feel very confident we are on the right track. We will bring Adidas back again. Give us some time and we will again say – we got this!” Gulden said.

Editor's Note: This article has been updated with additional comments from the Adidas CEO ruling out a possible renewal in the partnership with Kanye West.

This story was originally featured on Fortune.com