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Adidas warns of significant earning hit after finishing Ye partnership

Adidas warns of significant earning hit after finishing Ye partnership

November 10, 2022: On Wednesday, Adidas cut its complete year guidance on the back of the German sportswear firm’s termination of its partnership with Kanye West’s brand known as Yeezy.

The company completed its relationship with Ye, known as Kanye West, on October 25 after the musician established a series of offensive and antisemitic tirades on social media and in an interview.

Adidas projects a net income from continuing operations of nearly 250 million euros, down from a target of about 500 million euros laid out on October 20. The company anticipates currency-neutral revenues for less single-digit growth in 2022, with gross margin currently scheduled to come at around 47% for the year.

Adidas reported a 4% yearly increase in currency-neutral sales in the third quarter, with a double-digit increase in e-commerce in the EMEA, North America, and Latin America. Gross margin decreased by one percentage point to 49.1% on the back of “higher supply chain costs, higher forgiving, and an unfavorable market mix,” the company stated.

Operating profit is coming in at 564 million euros. In comparison, net income from the operations of 66 million euros, down from 479 million euros before a year, was “negatively impacted by several one-off costs totaling almost 300 million and extraordinary tax effects in Q3,” Adidas said.

“This amount differs from the preliminary figure stated on October 20, 2022, because of the negative tax implications in the third quarter, which is related to the company’s opinion to terminate the Adidas Yeezy partnership. This negative tax effect will be completely compensated by a positive tax effect of almost the same size in Q4,” Adidas said.

The company had already decreased its full-year guidance on October 20 due to “further deterioration of traffic trends in China, higher clearance activity to decrease elevated inventory levels, and total one-off costs of around 500 million euros.”

“The market environment shifted at the starting of September as consumer demand in Western markets is slowing and traffic trends in Greater China more deteriorated,” Adidas CFO Harm Ohlmeyer added in a statement.

“As a result, we saw a huge inventory buildup all the industry, leading to higher promotional activity in the remainder of the year, which will surge weigh on our earnings.”

Ohlmeyer added that the company was “encouraged” by “noticeable” enthusiasm to make the FIFA World Cup in Qatar this month.

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