Adidas' breakup with Kanye West could cost the brand billions
Adidas is in a bit of a pickle with its Yeezy line.
The backstory: Adidas is in a bit of a pickle with its Yeezy line. The German sportswear giant recently cut ties with Yeezy creator Kanye West, aka Ye, after he made controversial comments that were deemed "unacceptable, harmful, and against the company's values of diversity and mutual respect." The nine-year partnership ended right before Christmas, forcing Adidas to adjust its 2022 earnings outlook, cutting it in half to around €250 million (US$267 million.)
The development: With piles of Yeezy merchandise sitting in its warehouses, the breakup could cost Adidas a massive hit of €1.2 billion (US$1.3 billion) in sales. It's estimated it will cost the company €500 million (US$534 million) in operating profits this year alone. The news surprised the stock market, and Adidas shares took a 10% dive in early trading last Friday.
Now, Adidas is trying to figure out what to do with all that leftover Yeezy merchandise and is conducting a strategic review to bounce back and "reignite profitable growth" starting in 2024. Unfortunately, this review will come with a cost of €200 million (US$213 million) this year. It's been a rough year for Adidas, as its operating profit for 2022 was only €669 million (US$715 million), a third of what it made in 2021.
"The numbers speak for themselves. We are currently not performing the way we should," said CEO Bjørn Gulden, who joined Adidas in January.
"2023 will be a year of transition to set the base to again be a growing and profitable company," said CEO Bjørn Gulden. "We need to put the pieces back together again, but I am convinced that over time we will make Adidas shine again. But we need some time."
"While we think CEO Bjørn Gulden is the right person to turn around the brand, we don't expect initial signs until 2H24," said UBS analysts in a note to investors.