Adidas' breakup with Ye drives lower earnings outlook

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Adidas on Wednesday lowered its earnings forecast for the year to account for losses from ending its partnership with the rapper formerly known as Kanye West over his antisemitic remarks.

The German shoe and sportswear maker cut its sales and profit outlook for the year as part of its third-quarter earnings statement, even as the company's chief financial officer said the profitability of the Yeezy shoe collaboration with Ye had been "overstated." The company would largely offset the impact of the breakup next year by no longer having to pay royalties and marketing fees for the brand, CFO Harm Ohlmeyer said.

The Oct. 25 split with Ye, with production of all Yeezy products halted and royalty payments ended, will leave Adidas searching for another star to help it compete with ever-larger rival Nike. Adidas also is facing internal upheaval, with its CEO Kasper Rorsted stepping down Friday. He was previously expected to hand over next year, but the company announced the quicker change on Tuesday as it named Puma CEO Bjorn Gulden as his replacement.

Ohlmeyer said on a conference call with reporters that the profitability of the Yeezy business had been overstated because its costs only included expenses directly related to the products and not central overhead costs borne by the company. The Yeezy brand accounted for up to 15% of Adidas' net income, Morningstar analyst David Swartz said in a note Oct. 26.

 

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