Breaking up with rapper Kanye West has made a tough year even tougher for Adidas. The company announced Wednesday “that it would need to cut revenue and earnings forecasts for a fourth time this year,” according to The New York Times.
The latest cut is tied primarily to the company’s recent loss of West’s star power, but Adidas also continues to struggle with other market challenges, like “costs linked to its exit from Russia after the invasion of Ukraine and continuing difficulties in Chinese markets,” the story said.
Shoe companies in general have suffered as Chinese consumers have distanced themselves from Western brands, explained David Swartz, a Morningstar analyst, to Business Insider.
Is Adidas in trouble?
Although Adidas’ financial future looks bleaker now than it did at the beginning of the year, the company still expects revenue growth in 2022.
“In its third-quarter earnings report, Adidas projected revenue growth for 2022 in the low-single-digits percentage range, and said its operating profit margin would be around 2.5%,” The New York Times reported. “At the beginning of the year, the company forecast revenue growth of as much as 13%, and an operating margin of up to 11%.”
The company’s future success hinges in part on its ability to protect the reputation of the Yeezy brand amid the downfall of the brand’s former front man, West, who now goes by Ye.
“On Wednesday, Adidas stressed that it retained the intellectual property and design rights to Yeezy products that had been developed but not yet hit the market. It said ‘interesting plans’ were being developed for the goods,” The New York Times reported.
What happened between Adidas and Kanye West?
Adidas broke its ties to West after the rapper made a series of antisemitic remarks. The company said in an Oct. 25 statement that it “does not tolerate antisemitism and any other sort of hate speech.”
“Ye’s recent comments and actions have been unacceptable, hateful and dangerous, and they violate the company’s values of diversity and inclusion, mutual respect and fairness,” the statement said.
At the time, Adidas acknowledged that parting ways with West would affect its bottom line.
“This is expected to have a short-term negative impact of up to 250 million euros (around $246 million) on the company’s net income in 2022 given the high seasonality of the fourth quarter,” the statement said.
Several other companies, including Balenciaga and the talent agency CAA, also broke off partnerships with West in recent weeks, as the Deseret News previously reported.
Adidas hires new CEO
Despite predicting a financial fallout from its decision on West, Adidas’ announcement Wednesday about new cuts to revenue expectations landed with a thud among investors.
“Shares in Adidas fell by 2.8% after the results announcement,” Reuters reported.
But many remain optimistic about what the shoe company’s future will hold, in part because Adidas recently announced that Bjorn Gulden, formerly the head of Puma, will soon become its chief executive.
“Gulden helped turn around the fortunes of Puma, which he had led since 2013. Investors welcomed the news of his move; Adidas’s stock has climbed more than 27% after his departure from Puma was announced on Friday,” The New York Times reported.