Adidas slashes 2022 outlook after Kanye West split

Adidas now expects its currency-neutral revenue to grow at a low-single-digit rate in 2022, down from a previously forecast mid-single-digit rate.

 A pair of Yeezy shoes are seen in a Foot Locker store on the day Adidas terminated its partnership with the American rapper and designer Kanye West, now known as Ye, in Garden City, New York, US, October 25, 2022. (photo credit: REUTERS/SHANNON STAPLETON)
A pair of Yeezy shoes are seen in a Foot Locker store on the day Adidas terminated its partnership with the American rapper and designer Kanye West, now known as Ye, in Garden City, New York, US, October 25, 2022.
(photo credit: REUTERS/SHANNON STAPLETON)

Adidas further slashed its outlook for 2022 on Wednesday as it weighed the impact of its split from Ye, the rapper formerly known as Kanye West, while sluggish demand in China continued to impact sales.

Adidas now expects its currency-neutral revenue to grow at a low-single-digit rate in 2022, down from a previously forecast mid-single-digit rate. It expects an operating margin of around 2.5% rather than 4%.

Shares in Adidas fell by 2.8% after the results announcement, with Credit Suisse analysts counting the company's future challenges as elevated inventory, deteriorating brand momentum, elevated competition in China, long lead-times in sporting goods and the loss of Ye's Yeezy brand.

These challenges will fall to new chief executive Bjorn Gulden to address. Gulden is set to replace Kasper Rorsted from Jan. 1 after leaving rival Puma.

Adidas reported a 27% drop in cross-company revenue in the Chinese market in the third quarter, also pointing to persistent challenges there posed by COVID restrictions. It posted net income from continuing operations of 66 million euros, revising down its preliminary figure by almost two-thirds following the end of the Ye partnership.

 Kanye West directs people during his Yeezy Season 3 Collection presentation and listening party during New York Fashion Week (credit: REUTERS) Kanye West directs people during his Yeezy Season 3 Collection presentation and listening party during New York Fashion Week (credit: REUTERS)

A reduction in annual earnings

The termination of the partnership is expected to reduce annual earnings by half, the company previously said, with net income from continuing operations of around 250 million euros ($252 million) now expected this year.

One-off costs are expected to total almost 300 million euros, mainly linked to Adidas's exit from Russia as well as negative tax effects related to the split from Ye, the company said, adding that this would be fully compensated by a positive tax effect of similar size in the fourth quarter.