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Adidas has warned that its unsold Yeezy stock could wipe out profits for the first time in three decades amid its breakup with Kanye West following his anti-Semitic tirades.
Shares of the retail giant plunged more than 12 percent on Friday after the company admitted it could lose hundreds of millions due to its unsellable inventory of the rapper’s merchandise.
Just for not selling the shares, the German brand’s revenue would take a hit of 1.2 billion euros this year, while operating profit would fall by roughly 500 million euros as the company struggles to break even.
‘The numbers speak for themselves. Currently we are not performing as we should,” said chief executive Bjorn Gulden, who joined Adidas on January 1 after switching from rival Puma.
The company’s financial headache erupted after West shocked the world with a series of anti-Semitic rants in recent months.
Numerous companies have severed ties with Kanye West after he went on a series of anti-Semitic rants.
Adidas has warned that it faces a dire financial situation related to its unsold stock of West’s ‘Yeezy’ shoe collection.
Adidas CEO Bjorn Gulden admitted that “the numbers speak for themselves” amid the company’s financial crisis.
Yeezy sneaker price tags can go for as much as $700 a pair, leading the company to face a $750 million loss this year as it considers selling off all of its inventory.
Amid financial turmoil caused by the rapper’s outbursts, which caused Adidas to cut ties with the rapper in October, the retail giant is conducting an urgent review to find an off-ramp and salvage its bottom line.
One option to save your warehouse inventory is to reuse the stock under a different brand.
Adidas’s decision to end its lucrative deal with West prompted the rapid end of sales of his line of footwear and apparel, a deal that once netted the company billions.
Despite cutting ties with the rapper and fashion designer, the company’s problems stem from its inability to turn around large stocks of its once-popular products.
Following Adidas’s decision to cut ties with West in October, owners of its Yeezy shoes scrambled to ditch their shoes, with searches for the term “selling Yeezy” skyrocketing nearly 600 percent overnight. .
And the fallout has continued to plague the German sports brand, prompting it to issue its fourth profit warning in the past six months.
The new boss of the embattled company has promised a “transition year” within Adidas to bring the sportswear giant back to profitability.
The break with West came just before the crucial sales period before Christmas, forcing Adidas to halve its 2022 earnings outlook in early November to €250m, and highlighting the risks some brands face. have taken on by linking their fortunes to celebrities.
Adidas had previously lowered its 2022 forecasts in October to mid-single-digit percentage revenue growth in light of weaker demand in China and Western markets.
The company also suffered losses due to exceptional expenses related to its departure from Russia following the invasion of Ukraine, but recent results showed that the company had fared even worse than expected.
Adidas publicly parted ways with West in October 2022
Forbes determined that West is now only worth $400 million after losing his deals with Adidas and other companies, down from his height of $2 billion.
“2023 will be a year of transition to lay the foundation to return to being a growing and profitable company,” Gulden said Thursday, adding that the company will focus on building “brand heat.”
“We need to put the pieces back together, but I am convinced that over time we will make Adidas shine again. But we need some time.
Gulden’s former company and Adidas rival, Puma, also reported losing ground on Friday, as the 5 per cent drop in its share price indicated the challenges many companies are currently facing amid high inflation in the United States. everyone.
UBS analysts said in a note to investors that they expected the Yeezy business to be scrapped entirely given the tone of Gulden’s comments, and that it would be a long task for the new boss.
“While we believe CEO Bjørn Gulden is the right person to rebrand, we don’t expect initial signs until 2H24,” the note said.
Kanye West’s offensive behavior in recent months has caused serious financial problems for him and his businesses.
The rapper lost his billionaire status last year after facing severe backlash for a series of anti-Semitic rants.
In addition to being dumped by Adidas, West also saw his $220 million annual contract with GAP terminated and his Yeezy line ripped from its stores.
The 45-year-old shocked the world last year after a series of bizarre behaviours, including introducing a series of shirts to his ‘White Lives Matter’ fashion line at Paris Fashion Week.
He offended his former fans again during an appearance on the popular Drink Champs podcast, when he claimed that George Floyd died of a fentanyl overdose and that Derek Chauvin’s knee “wasn’t even in his neck like that.”
Kanye also made the incorrect claim that he is the “richest black man in American history,” a title that belongs to Vista Equity’s Robert F. Smith.
The rapper, whose social media accounts have since been restricted, posted a shocking tweet in October vowing to “go to the death against the Jewish people.”
West added that he “can’t really be anti-Semitic because blacks are Jews too.”
West’s offensive comments led numerous companies associated with him to publicly drop their deals with the rapper.
Despite the financial disaster that hit Adidas books in the wake of the controversy, insiders initially believed that the Yeezy resale market would explode because they would no longer be produced in mass numbers.
Adidas, whose founder Adi Dassler belonged to the Nazi Party, found itself under increasing pressure to drop Kanye after his anti-Semitic comments.
The anticipation for the breakup led some to believe that the companies would want to hold on to their shares to resell the once-popular shoe once Adidas parted ways with West.