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Adidas warns of big revenue 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 on Wednesday cut its full-year guidance on the back of the German sportswear giant̵[ads1]7;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 estimates net income from continuing operations of around 250 million euros ($251.56 million), down from a target of around 500 million euros posted on Oct. 20. The company now expects currency-neutral earnings for low single-digit growth in 2022, with gross margin now expected to come in at 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 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 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 as well as extraordinary tax effects in Q3,” Adidas said.

Adidas warns of big revenue hit after Ye partnership ends

“This amount differs from the preliminary figure published on October 20, 2022, due to negative tax implications in the third quarter related to the company’s decision to end the adidas Yeezy collaboration. This negative tax effect will be fully offset by a positive tax effect of similar size in Q4,” Adidas said.

The company also revealed that it had already reduced its full-year guidance on October 20 as a result of “further deterioration in traffic trends in Greater China, higher clearance activity to reduce elevated inventory levels as well as total non-recurring 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 further deteriorated,” Adidas Chief Financial Officer Harm Ohlmeyer said in a statement.

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

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



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