After Severing Ties With Ye, Adidas Forewarns of a Significant Profits Decline

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Last Updated on November 9, 2022 by Bitfinsider

The German sportswear giant lowered its full-year projection following the loss of its association with Kanye West’s Yeezy brand.

The corporation severed ties with Ye, formerly known as Kanye West, on October 25 as a result of the musician’s abusive and antisemitic social media posts and interviews.

Adidas now anticipates a net income from continuing operations of approximately 250 million euros ($251.56 million), a decrease from its October 20 projection of approximately 500 million euros. The company now anticipates currency-neutral revenue growth in the low single digits in 2022, with a gross margin of around 47% for the year.

In the third quarter, Adidas reported a 4% increase in currency-neutral sales, with double-digit growth across e-commerce in EMEA, North America, and Latin America. The company’s gross margin decreased by one percentage point to 49.1% due to “greater supply chain expenses, more discounting, and an unfavorable market mix.”

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 multiple one-time charges totaling nearly 300 million and unusual tax consequences in Q3,” according to Adidas.

“This number differs from the preliminary figure released on October 20, 2022, due to negative tax effects in the third quarter resulting from the company’s decision to end its agreement with adidas Yeezy. This negative tax effect will be fully offset by a corresponding positive tax effect in the fourth quarter,” Adidas stated.

The business also disclosed on October 20 that it has already lowered its full-year expectations due to “continued deterioration of traffic trends in Greater China, more clearance activity to reduce elevated inventory levels, and total one-time expenditures of about 500 million euros.”

“At the beginning of September, the market climate changed as consumer demand in Western countries slowed and traffic trends in Greater China worsened,” Adidas CFO Harm Ohlmeyer said in a statement.

As a result, a considerable inventory building occurred across the industry, resulting in increased promotional activity for the balance of the year, which will weigh increasingly on our earnings.

Ohlmeyer stated that the corporation was “encouraged” by the “notable” enthusiasm in the lead-up to this month’s FIFA World Cup in Qatar.

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