Getty Images Adidas on Wednesday cut its full-year guidance due to the termination of the German sportswear giant’s partnership with Kanye West’s Yeezy brand. The label ended its relationship with Ye, formerly known as Kanye West, on October 25 after the musician launched a series of offensive and anti-Semitic rants on social media and in interviews. Adidas now forecasts net income from continuing operations of 250 million euros ($251.56 million), below a target of 500 million euros set on Oct. 20. In 2022, with gross margin now expected to reach 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 percent due to “higher supply chain costs, higher discounts and an unfavorable market mix,” the company said. Operating profit came in at €564m, while net income from continuing operations of €66m, down from €479m last year, was “negatively impacted by several one-off costs totaling almost €300m as well as one-off tax effects in Q3,” Adidas said. “This amount differs from the preliminary amount published on October 20, 2022, due to a negative tax impact in the third quarter related to the company’s decision to terminate the adidas Yeezy partnership. This negative tax impact will be fully offset by a positive tax similar size effect in Q4,” Adidas said. The company also revealed that it had already lowered its guidance for the full year on October 20 as a result of “further deterioration in traffic trends in Greater China, higher clearance activity to reduce high inventory levels as well as total one-time costs of approximately 500 millions of euros”. “The market environment changed in early September as consumer demand in Western markets slowed and circulation trends in wider China worsened further,” Adidas chief financial officer Harm Ohlmeyer said. “As a result, we’ve seen a significant build-up of inventory across the industry, leading to higher advertising activity over the remainder of the year, which will increasingly weigh on our bottom line.” Ohlmeyer said the company was “encouraged” by the “palpable” excitement at the FIFA World Cup gathering in Qatar later this month.
