Topline
Adidas shares plummeted Friday morning after the company said it could lose hundreds of millions of dollars this year from its failed partnership with rapper Kanye West, whose antisemitic remarks last year prompted the sportswear giant to sever ties and scrap their lucrative joint brand, Yeezy.
Yeezy was a lucrative partnership for West and Adidas.
Key Facts
Shares of Adidas dropped as much as 11% on Friday morning after the German company warned its split with West, also known as Ye, could wipe out operating profits this year.
The company said late Thursday that it is still reviewing whether to scrap the mountain of unsold Yeezy merchandise leftover from the partnership and warned of a “significant adverse impact from not selling the existing stock.”
Adidas said it expects to lose around $1.3 billion in revenue and roughly $535 million in operating profit this year if it cannot sell the stock.
Adidas also forecast falling sales and one-off costs of roughly $214 million this year, which could push the firm to an operating loss of nearly $750 million for 2023.
Chief executive Bjørn Gulden said 2023 will be a “year of transition to set the base to again be a growing and profitable company.”
Adidas has “all the ingredients to be successful,” Gulden stressed, but just needs “some time” to rebuild.
Crucial Quote
Adidas’ statement is the company’s fourth profit warning since July and Gulden’s assessment of the situation was blunt. “The numbers speak for themselves,” he said. “We are currently not performing the way we should.”
What To Watch For
Adidas should return to profitable growth in 2024, the company said in a statement. “We need to put the pieces back together again, but I am convinced that over time we will make Adidas shine again,” Gulden said. The firm is due to report its full 2022 results in early March.
News Peg
Adidas dropped West in October amid public outcry over the rapper’s antisemitic comments on social media, as well as promoting baseless conspiracy theories and making racist remarks. Adidas said his behavior was “unacceptable, hateful and dangerous” and not in line with the company’s values. Adidas joined a string of other companies cutting ties with West and the loss of the Yeezy partnership obliterated his net worth and evicted him from Forbes’ billionaires’ list. The Yeezy line was a cash cow for Adidas and its loss was expected to hit its finances hard, something magnified by the company’s troubles in the Chinese market and exiting Russia following its invasion of Ukraine.
Further Reading
Adidas Cuts Ties With Kanye West After Anti-Semitic Comments (Forbes)
Billionaire No More: Kanye West’s Antisemitism Obliterates His Net Worth As Adidas Cuts Ties (Forbes)
Fear, misfortune and Kanye West: how Adidas lost its luster (Financial Times)
Source: https://www.forbes.com/sites/roberthart/2023/02/10/adidas-shares-plummet-as-losses-loom-from-stockpile-of-unsold-yeezys-left-after-kanye-west-breakup/