Adidas slumps as Kanye split triggers new profit warning

Adidas (ADSGn.DE) shares slumped as much as 12 per cent on Friday after the sportswear maker warned it could plunge to a loss this year for the first time in three decades, in the latest downgrade triggered by its split from Kanye West.

The German group ended its partnership with the rapper and fashion designer now known as Ye in October after he made antisemitic remarks, prompting a review on what to do with the remaining inventory of his Yeezy products.

In its fourth profit warning in less than six months, Adidas said late Thursday that not selling the stock could cut revenue by around 1.2 billion euros ($1.3 billion) in 2023 and operating profit by about 500 million euros to around break-even.

But if it chooses to write the stock off altogether – rather than, for example, repurposing it – this could lead to an additional 500 million euro drop in 2023 operating profit, and there could be a further one-off hit of 200 million euros as part of a review to return to profitable growth in 2024.

That amounted to a worst-case scenario of a 700 million euro loss this year, the group warned.

“The numbers speak for themselves. We are currently not performing the way we should,” said CEO Bjorn Gulden, who joined Adidas on Jan. 1 after switching from rival Puma (PUMG.DE).

At 1015 GMT, Adidas shares were down 10.7 per cent at 139.52 euros.

The group forecast a high single-digit percentage decline in sales this year. Analysts had on average had expected a 4 per cent rise in 2023 revenue on a currency-neutral basis and operating profit of 1.02 billion euros, according to figures on Adidas’ website.

Baader Helvea described the new guidance as “horrible” and very disappointing.

The news came as Adidas missed its own forecasts with a rise of just 1 per cent in 2022 revenue in currency-neutral terms.

Jefferies cut its recommendation on Adidas stock to “hold” from “buy”, citing “challenges in articulating the mid-term profit delivery”.

Adidas had lowered its 2022 forecasts in October to mid-single digit percentage revenue growth and a 4 per cent operating margin in light of weaker demand in China and Western markets and one-off expenses related to exiting Russia.

But Thursday’s results showed the company had fared worse than it expected, yielding an operating margin of 3 per cent.

It will report full 2022 results on March 8.

($1 = 0.9307 euros)