Adidas warns of big profits after ending partnership with Ye

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

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Adidas cut its full-year outlook on Wednesday as the German sportswear giant ended its partnership with Kanye West’s Yeezy brand.

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

Adidas now projects net income from ongoing operations of around 250 million euros ($251.56 million), up from a target of around 500 million euros set on October 20. 2022, with gross margin expected to be around 47% for the year.

Adidas reported 4% year-on-year non-exchange sales growth in the third quarter, as well as double-digit e-commerce growth across Europe, the Middle East and Africa, North America and Latin America. Gross margin fell one percentage point to 49.1% amid “higher supply chain costs, higher discounts and unfavorable market structure,” the company said in a statement.

Operating income was €564 million, while net income from continuing operations of €66 million, compared to €479 million a year earlier, “was negatively impacted by several non-recurring expenses totaling nearly €300 million, as well as extraordinary tax implications in Q3,” said Adidas.

“This amount differs from the provisional figure released on October 20, 2022 due to negative tax implications in the third quarter associated with the company’s decision to end its partnership with adidas Yeezy. This negative tax effect will be fully offset by the positive tax effect of a similar size in the fourth quarter,” Adidas said.

The company also said it had already cut its full-year guidance on October 20 as a result of “further worsening driving trends in Greater China, higher clean-up activity to reduce elevated inventory levels, and total non-recurring costs of around €500 million.”

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

“As a result, we have seen significant inventory buildup across the industry, leading to higher advertising activity throughout the remainder of the year, which will increasingly impact our revenue.”

Ohlmeyer said the company was “encouraged” by the “visible” enthusiasm in preparation for the World Cup in Qatar later this month.

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