Adidas slashes earnings again after break-up with Kanye West

Adidas took the secateurs to its earnings guidance for the fourth time this year on Wednesday, after its recent divorce from Kanye West following a string of antisemitic claims by the rapper and designer.

The German sportswear and athleisure giant said it now expected group revenue growth for the year to be in the low-single digits, compared to its prior guidance for a mid-single digit percentage rise.

Its net profit from continuing operations was halved to around €250m, with its gross and operating margins shrinking to 47% and 2.5%.

The axing of the ‘Yeezy’ collaborative range that Adidas shares with West would see earnings fall by around €250m, Adidas said, with the lower guidance coming just weeks after its last warning on the back of its exit from Russia as well as consumer confidence hurdles in developed economies.

Looking at its third quarter, Adidas reported a 4% organic increase in sales to €6.41bn, with its gross and operating margins coming in at a respective 49.1% and 8.8% - the latter having fallen almost three percentage points.

Its net income from continuing operations tumbled to €66m, with the company citing several one-off costs totalling almost €300m, as well as “extraordinary” tax effects in the third quarter.

“The market environment shifted at the beginning of September as consumer demand in Western markets slowed and traffic trends in Greater China further deteriorated,” said chief financial officer Harm Ohlmeyer.

“As a result, we saw a significant inventory buildup across the industry, leading to higher promotional activity during the remainder of the year which will increasingly weigh on our earnings.”

Ohlmeyer said the group was “encouraged by the enthusiasm” for the upcoming FIFA World Cup, which was already “noticeable” in its football revenue growth.

“And in North America we are gearing up for an exciting upcoming basketball launch.”

At 1322 CET (1222 GMT), shares in Adidas were up 3% in Frankfurt at €123.60.

Reporting by Josh White for Sharecast.com.