Adidas has said the ending of its collaboration with Kanye West is “hurting” the business, with sales in North America hard hit.
The sportswear giant cut its ties with the designer and rapper, known as Ye, late last year after he posted anti-Semitic comments on social media.
West designed trainers under the Yeezy brand and Adidas said the loss of the business cut sales by €400m (£350m) in the first quarter of the year.
Overall, total revenue fell by 1%.
Despite the dip, the figures were better than analysts had been expecting and Adidas said that sales were up 9% when the impact of the Yeezy business was excluded.
Adidas said it was benefiting from the current trend for “terrace” style trainers and was seeing “extraordinary demand” for its Samba, Gazelle and Campus brands.
Terrace styles are those that were originally popular among football fans in the 1980s, when supporters first embraced designer fashion brands such as Fila and Sergio Tacchini.
While Adidas said it had a limited supply of such shoes at the start of the year, it plans to increase production in the coming months.
In its latest results, Adidas said sales in North America had fallen by 20% as the region was particularly affected by the ending of the Yeezy business.
Adidas chief executive Bjorn Gulden said the loss of Yeezy is “of course hurting us”.
The company scrapped its tie-up with West in October last year following the rapper’s anti-Semitic comments. At the time, the firm said: “Adidas does not tolerate antisemitism and any other sort of hate speech.”
Adidas said that if it decided not to “repurpose” its remaining unsold Yeezy stock, this would hit its operating profit by €500m this year.
The company still has to decide what to do with the remaining products, and whether it will sell them or scrap them.
Mr Gulden the firm was narrowing its options on the Yeezy stock, and the company was getting “closer and closer” to a decision.
Pippa Stephens, senior apparel analyst at GlobalData, said that while Adidas was “unable to reverse its past mistakes, it must now quickly come to a decision on what to do with its remaining Yeezy stock, to avoid angering its investors even further”.
“Should it decide to sell it, it risks damaging its brand reputation even further, so must ensure it does so sensitively to avoid upsetting customers.”
The company is being sued by investors who claim Adidas knew about Kanye West’s problematic behaviour years before it ended their partnership.
Investors allege Adidas failed to limit financial losses and take precautionary measures to minimise their exposure.
In response, Adidas said it rejected “these unfounded claims”, adding that it would take “all necessary measures to vigorously defend ourselves against them”.
Despite the drop in overall sales during the first three months of the year, Adidas reported a higher-than-expected operating profit of €60m.
Strong demand for its football, running and tennis shoes helped footwear revenues grow by 1%.
However, Mr Gulden – who joined Adidas at the start of this year from rival Puma – warned that 2023 would be “a bumpy year with disappointing numbers”.
He also said that Adidas was aiming to make sure that 50% of the products it sells in China are designed specifically for the Chinese market.
China is the world’s second largest sportswear market, but Adidas has been falling behind its rivals there.
In the first three months of the year, its sales in China were down 9.4% from a year earlier.