Adidas warns of big profits hit after Ye partnership ends

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

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Adidas Wednesday cut its full-year guidance following the German sportswear giant’s termination of its 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 tirades on social media and in interviews.

Adidas now expects net profit from continuing operations of around 250 million euros ($251.56 million), down from a target of around 500 million euros set on Oct. 20. The company now expects revenue to be currency neutral for low single digit growth in 2022, with gross margin now expected to be around 47% for the year.

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

Operating profit was 564 million euros, while net profit from continuing operations of 66 million euros, compared to 479 million euros a year ago, was “negatively impacted by several costs not recurring costs totaling nearly 300 million as well as one-off tax effects in Q3,” Adidas said.

“This amount differs from the preliminary figure released on October 20, 2022, due to negative tax implications 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 tax effect positive of similar size in the fourth quarter,” Adidas said.

The company also revealed that it had already cut its full-year forecast on Oct. 20 due to “further deterioration in traffic trends in Greater China, higher clearance activity for reduce high inventory levels as well as total one-time costs of approximately €500 million.”

“The market environment changed in early September as consumer demand in Western markets slowed and traffic trends in Greater China deteriorated further,” Adidas chief financial officer Harm Ohlmeyer said in a statement. communicated.

“As a result, we have seen significant inventory build-up across the industry, leading to higher promotional activity over the remainder of the year, which will increasingly weigh on our earnings.”

Ohlmeyer said the company was “encouraged” by the “remarkable” enthusiasm in the build-up to the FIFA World Cup in Qatar later this month.

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