Adidas Cuts Full-Year Guidance Following Relationship Termination with Ye

UTC by Ibukun Ogundare · 3 min read
Adidas Cuts Full-Year Guidance Following Relationship Termination with Ye
Photo: Adidas

Adidas reduced its expectations for the full-year traffic trend decline in Greater China.

German design company Adidas has cut its full-year guidance following its partnership termination with popular American rapper Ye, formally known as Kanye West. Adidas employees and the general public all pushed for the abortion of the business relationship after Ye made offensive and antisemitic statements in a podcast on the 26th of October. The rapper bragged:

“I can say anti-Semitic things, and Adidas can’t drop me. Now what?”

Adidas Warns of Lower Earnings Expectations After Ending Partnership with Ye

Following Ye’s statement, at least three legal organizations and anti-racism groups have called on the German company to end its partnership with the popular rapper and songwriter. Also, there is a petition against the hip-hop artist, and it gathered more than 182,000 supporters.

As Adidas bids farewell to Ye, the company now expects to see lower returns in the full year’s earnings. It has reduced its outlook for net income from continuing operations by around 500 million euros stated on the 20th of October. Adidas is now looking forward to a net income from continuing operations of around 250 million euros. Also, it projected low single-digit growth for currency-neutral revenues in 2022. The gross margin is expected to be about 47% for the full year.

Meanwhile, Adidas recorded 564 million euros in operating profit and 66 million euros in continuing income from continued operations in Q3. The company blamed “several one-off costs totaling almost 300 million as well as extraordinary tax effects in Q3 for the financial result.

Adidas’s Quarterly Performance

The design company accounted for a 4% YoY increase in currency-neutral sales in Q3. It also has double-digit growth in e-commerce in North America, Latin America, and EMEA. The company noted that gross margin declined 1% point to 49.1$ due to “higher supply chain costs, higher discounting, and an unfavorable market mix.”

“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 terminate the adidas Yeezy partnership. This negative tax effect will be fully compensated by a positive tax effect of similar size in Q4.”

Apart from the relationship termination with Ye, Adidas also reduced its expectations for the full-year traffic trend decline in Greater China. It also blamed “higher clearance activity to reduce elevated inventory levels as well as total one-off costs of around million euros.”

The firm’s chief financial officer Harm Ohlmeyer said there was a shift in the market environment at the beginning of September. The CFO tied the change to lower demand in Western markets and a further decline in traffic trends in Greater China.

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