Adidas cuts profit guidance amid Kanye West fallout

Adidas on Wednesday lowered its profit projections for the full year, saying its break-up with Yeezy is expected to affect its bottom line during the important holiday shopping season.

Investors and shoe enthusiasts had been expected to closely watch the Adidas earnings release, in which the company was expected to share new details about the fallout from the termination of its relationship with Ye, the rapper formerly known as Kanye West.

Adidas ended the partnership last month over hateful speech and actions undertaken by Ye, estimating in a statement last month that the move would cost the company up to $246 million in profits this year.

The company on Wednesday said it had lowered its full-year operating margin outlook to 2.5%, down from the 4% margin it had targeted before the Yeezy termination in October.

"Following the decision on October 25, 2022, to terminate the adidas Yeezy partnership, adidas now incorporates the related top- and bottom-line impact into its guidance for FY 2022, reflecting the high seasonality of the adidas Yeezy business geared towards the fourth quarter," the company said in a statement.

The company stopped production of all Adidas Yeezy products and halted payments to Ye, the statement added.

Still, the exact plans for the severing of the arrangement remain unknown. Adidas declined to respond to a request for comment.

Adidas, a German company, faced increasing pressure to cut ties with Ye last month after the rapper made antisemitic comments on Twitter, podcasts and interviews.

Ye also stoked controversy last month after appearing at a surprise show in Paris wearing a T-shirt bearing the phrase "White Lives Matter," which the Anti-Defamation League has labeled as hate speech and has been promoted by white supremacist groups.

"Adidas does not tolerate antisemitism and any other sort of hate speech," the company said in a statement last month after terminating the partnership.

"Ye's recent comments and actions have been unacceptable, hateful and dangerous, and they violate the company's values of diversity and inclusion, mutual respect and fairness," the statement added.

Last year, Yeezy was valued at between $3.2 billion and $4.7 billion by Switzerland-based investment bank UBS, Bloomberg reported.

The Yeezy line accounts for roughly $1 billion to $2 billion in annual sales for Adidas, according to Evercore ISI analyst Omar Saad.

Clothing retailer Gap, which also retained a partnership with Yeezy, ended that arrangement in September, the company said in a statement last month, adding that it had taken immediate steps to remove Yeezy Gap products from its stores.

The quarterly earnings announcement arrives a day after the appointment on Tuesday of chief executive Bjørn Gulden, the former CEO of rival Puma. Gulden, who will take over in January, replaces Kasper Rorsted, Adidas' CEO since 2016.

Gulden previously worked at Adidas in the 1990s as senior vice president of apparel and accessories.

"We are very pleased to welcome Bjørn Gulden back at adidas," Thomas Rabe, chairman of the supervisory board of Adidas, said in a statement on Tuesday.

At the close of trading in Frankfurt on Tuesday, shares of Adidas had risen more than 4%.