Adidas shares tank after company issues warning over unsold Yeezy stock, could lose $1.8b
Kanye West was dumped by the sports brand after making offensive comments and now it has revealed the huge financial hit it will take.
Adidas could suffer its first loss of revenue in 30 years after it scrapped its partnership with rapper and fashion designer Ye and is facing a whopping $1.8 billion drop in revenue if it is unable to offload its existing Yeezy stock.
The sports brand announced in October that they were cutting ties with Kanye West over his “harmful” and “dangerous” comments after he made a string of anti-Semitic slurs.
At the time, the company said that the move would cost it €250 million ($A390 million).
Now, Adidas has revealed it was assessing what to do with its leftover Yeezy stock after it ended the nine year partnership and said its financial guidance for 2023 “accounts for the significant adverse impact from not selling the existing stock”.
If Adidas is unable to “repurpose” the remaining Ye clothing – as it aimed to strip the clothing of its Yeezy name and branding to sell – it would see $772 million slashed from its operating profit this year.
The company revealed selling the sneakers under its own branding would mean savings of $434 million in royalty and marketing fees.
But analysts believe reselling the rebranded stock would be difficult and the only options they could face would be destroying the clothing or donating it.
“There really are no good options for this distressed brand that sat somewhere between prestige and luxury,” Burt Flickinger, retail expert and managing director at retail consultancy Strategic Resource Group told CNN.
Adidas shares dropped by 11 per cent after it made the announcement on Friday, while it also forecast one off costs up to $308 million as part a strategic review it is currently conducting aimed at reigniting growth as of 2024.
Overall, Adidas shares have slumped by 45 per cent over the past year.
“The numbers speak for themselves. We are currently not performing the way we should,” said Adidas CEO Bjørn Gulden.
“2023 will be a year of transition to set the base to again be a growing and profitable company. We will put full focus on the consumer, our athletes, our retail partners and our Adidas employees. Together we will work on creating brand heat, improve our product engine, better serve our distribution and assure that Adidas is a great and fun place to work.
“Adidas has all the ingredients to be successful: a great brand, great people, fantastic partners and a global infrastructure second to none. 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.”
Its partnership with Beyonce’s Ivy Park brand has also taken a hit with sales falling 50 per cent last year to $58 million – well below internal projections of $361 million, according to the Wall Street Journal.
But the company said it was a “strong and successful” partnership.
Adidas’ revenues only increased by 1 per cent in 2022, while its operating profit dropped from almost $3 billion to $1 million last year.
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