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Sneaker maker Adidas AG on Thursday said it could take a big hit to profit and sales should it decide not to sell any of the existing Yeezy products made under a collaboration with megastar Kanye West.
Shares slumped nearly 9% in Frankfurt on Friday, after similar losses for its U.S.-listed stock on Thursday.
Adidas
ADDYY,
ADS,
ended its relationship with West last year, after the rapper and fashion designer made a string of antisemitic remarks. At the time, the athletic-gear company said that it would stop making Yeezy products and halt payments to West and his businesses, leading to costs of roughly 250 million euros in 2022.
However, Adidas is still holding a lot of Yeezy gear it had already manufactured. And executives said that situation could lead to much larger losses this year, depending on how they deal with the surplus.
In a statement on Thursday outlining its 2023 outlook, Adidas said it expects a “high-single-digit” currency-neutral sales decline this year and “underlying” operating profit to break even, roughly. But it could go much worse, depending on Yeezy.
Adidas “continues to review future options for the utilization of its Yeezy inventory,” executives said. The outlook, executives said, “already accounts for the significant adverse impact from not selling the existing stock” of Yeezy-brand goods, which would slash this year’s sales by 1.2 billion euros ($1.2 billion) and lower operating profit by around 500 million euros ($536 million).
Further cutting its losses with West would cause Adidas to take an even bigger hit to profit, the company said.
“Should the company irrevocably decide not to repurpose any of the existing Yeezy product going forward, this would result in the write-off of the existing Yeezy inventory and would lower the company’s operating profit by an additional € 500 million this year,” Adidas said.
Adidas on Thursday also said it expected extra “one-off costs” of up to 200 million euros this year, which were part of a “strategic review” by the company intended to revive profitable growth in 2024.
If Adidas opted not to repurpose the existing Yeezy gear and also burned through those one-off costs, “the company would expect to report an operating loss of € 700 million in 2023,” Adidas executives said.
“The numbers speak for themselves,” Chief Executive Bjorn Gulden said in the statement. “We are currently not performing the way we should. 2023 will be a year of transition to set the base to again be a growing and profitable company.”
Shares of Adidas are down 46.6% over the past 12 months. By comparison, the S&P 500 index
SPX,
has fallen 10.7% over that period.
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