Adidas warns of big profits after Ye . partnership ends

Adidas On Wednesday it cut its full-year guidance on the back of the German sportswear giant ending its partnership with Yeezy brand Kanye West.

company She ended her relationship with Yeformerly known as Kanye West, on October 25 after the musician launched a series of offensive and anti-Semitic rhetoric on social media and in interviews.

Adidas now expects net income from continuing operations of approximately 250 million euros ($251.56 million), down from the target of around 500 million euros set on October 20. The company now expects currency-neutral revenue with low single-digit growth in 2022, and gross margin is now expected to be 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 Europe, the Middle East, Africa, North America and Latin America. The company said gross margin declined by one percentage point to 49.1% on the back of “rising supply chain costs, increased discounting, and an unfavorable market mix.”

Operating profit was €564 million, while net income from continuing operations of €66 million, down from €479 million last year, “was negatively impacted by various non-recurring costs totaling €300 million as well as unusual tax impacts in the Q3,” said Adidas.

“This amount differs from the preliminary figure published on October 20, 2022, due to negative tax impacts in the third quarter related to the company’s decision to terminate Yeezy’s partnership with adidas. This negative tax impact will be fully offset by the positive tax impact of a similar size in Q4.”

The company also revealed that it had already lowered its full-year guidance on October 20 as a result of “further deterioration in traffic trends in Greater China, increased clearance activity to reduce high inventory levels as well as total one-time costs of approximately €500 million”.

“The market environment changed at the beginning of September as consumer demand in Western markets slowed and traffic trends in Greater China deteriorated further,” Adidas Chief Financial Officer Harm Ohlmeyer said in a statement.

“As a result, we have seen a significant backlog of inventory across the industry, which has led to increased promotional activity over the remainder of the year which will increasingly impact our earnings.”

Olmeyer said the company was “encouraged” by the “remarkable” enthusiasm in preparing for the FIFA World Cup in Qatar later this month.