Adidas warns of big profits after ending partnership with Ye

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Kanye West at an event announcing a partnership with Adidas on June 28, 2016 in Hollywood, California.

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Adidas on Wednesday, the full-year outlook plummeted following the termination of the German sportswear giant’s partnership with Kanye West’s Yeezy brand.

The company ended its relationship with Ye, formerly known as Kanye West, on October 25 after the musician launched a series of offensive and anti-Semitic diatribes on social media and in interviews.

Adidas now expects net income from continuing operations of about €250 million ($251.56 million), lower than a target of about €500 million set on October 20. The company now expects currency-neutral revenues for low-single digit growth in 2022, with a gross margin now expected to be around 47% for the year.

Adidas reported a 4% year-over-year increase in currency-neutral sales in the third quarter, with double-digit growth in e-commerce in the EMEA, North America and Latin America. Gross margin declined one percentage point to 49.1% due to “higher supply chain costs, higher discounts and an unfavorable market mix,” the company said.

Operating income came in at 564 million euros, while net income from continuing operations of 66 million euros, down from 479 million euros a year ago, “was negatively impacted by several one-off costs totaling nearly 300 million euros and extraordinary tax effects in Q3 said Adidas.

“This amount differs from the preliminary figure published on October 20, 2022, due to negative tax consequences in the third quarter related to the company’s decision to end the adidas Yeezy partnership. This negative tax effect will be fully offset by a similarly sized positive tax impact in the fourth quarter,” said Adidas.

The company also revealed that it had already lowered its full-year expectations on Oct. 20 due to “further deterioration in traffic trends in Greater China, increased clearance activities to reduce increased inventory levels and total one-off costs of approximately $500 million.”

“The market environment changed in early September as consumer demand in western markets declined and traffic trends in Greater China deteriorated further,” Adidas CFO Harm Ohlmeyer said in a statement.

“As a result, we saw significant inventory build-up across the industry, leading to increased promotional activity through the remainder of the year, which will increasingly weigh on our revenues.”

Ohlmeyer said the company was “encouraged” by “noticeable” enthusiasm ahead of the FIFA World Cup in Qatar later this month.



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