Adidas is reeling from its decision to part ways with Kanye West, also known as Ye, after the designer’s behavior became intolerable for its brand. The company Wednesday lowered its guidance for 2022 in large part due to the discontinuation of its Yeezy line, a move that could cost 500 million euros ($502.3 million at press time) in revenue and up to 250 million euros in net income.
The loss of Yeezy is cutting the company’s profits in half. Adidas now expects currency-neutral revenues to grow at a low-single-digit rate, gross margin to be around 47%, operating margin to be around 2.5% and net income to reach 250 million euros.
In a call with analysts, however, Chief Financial Officer Harm Ohlmeyer made clear that Adidas “is the sole owner of the IP rights” of past, current and future designs, and that it will leverage them, minus the Yeezy name, starting next year. That will save some 300 million euros in royalties and marketing fees, according to an accompanying presentation.
Dropping its Yeezy line is not the only headwind that Adidas is facing. The sports gear giant noted that the war in Ukraine, rising expenses like freight, an inventory overload and a dicey global economy are all also contributing to its cautious outlook. The company had already lowered its guidance more than once this year.
Still, dumping the Yeezy name was not just a high-profile move, but an expensive one. Ohlmeyer sought to downplay the long-term implications, pointing out the company’s strengths in the athletic realm. Adidas is not deterred by the dramatic loss and will continue to pursue collaborations with other brands and influencers, like its new partnership with Gucci, he also said.
Ohlmeyer pushed back on some analysts’ idea of next year’s results without Yeezy. Adidas’ plans to leverage its existing Yeezy inventory are still underway. But that and scaling other product lines could help the company recoup “the vast majority of around 1.2 billion euros,” and some 400 million euros in profits next year, he said.
”We are far away from an 800 million impact or 1 billion that you mentioned,” he told one analyst.
But while Adidas may be able to legally use the Yeezy designs, that doesn’t mean it should. Analysts on the call questioned whether, without the Yeezy name, the company could fetch the kind of prices that Yeezy shoes have garnered.
“Adidas claims it is the sole owner of the design rights to the existing Yeezy products, but it should refrain from relaunching items under its own brand, as they will always be synonymous with West, and this would likely result in muted customer demand,” GlobalData Apparel Analyst Darcey Jupp said in emailed comments. “New CEO Bjørn Gulden has a tough job ahead, as the brand must find a suitable replacement to plug the hole from the missing Yeezy income, but the success of rival brand Puma under Gulden’s lead should provide some optimism for Adidas.”