Adidas Stands To Lose $650 Million After Dropping Kanye’s Yeezy Line—‘Right Decision,’ Analyst Says - Forbes

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Topline

Shares of German footwear and apparel giant Adidas slid Tuesday after it disclosed a nine-figure loss after breaking off its relationship with rapper Kanye West following his anti-Semitic tirades, an ill-timed public relations nightmare for the firm whose stock was already falling due to slumping sales.

Key Facts

The company disclosed an estimated 2022 loss of up to $247 million just in lost sales from West’s Yeezy line, yet another brutal revision after the company slashed its 2022 profit margin expectation from 7% to 4% Thursday due to a glut of inventory and a deterioration in China sales for its apparel and footwear as a whole.

Bernstein analyst Aneesha Sherman told Forbes Adidas confirmed to her it will entirely shut down Yeezy that accounts for a “high single digit” percentage of all sales, rebranding the products as Adidas and giving a notable “haircut” to the company’s revenue into 2023.

In a Tuesday note to clients, Bernstein cut its 2023 revenue forecast for Adidas by about $398 million due to the demise of Yeezy.

That puts Adidas’ total losses from its severing of ties with West at $645 million, with the $247 million loss of sales this year stated by the company and the $400 million in lost 2023 revenue forecast by Bernstein.

Adidas shares fell 5.6% to $97.96 in Frankfurt after the company dumped West, down about 15% over the last five days

Shares of rival Nike are up 1.3% in the period and Evercore ISI analyst Omar Saad said the “divergence appears to be widening” between the retailers.

Key Background

Adidas said October 6 it placed its partnership with West under review after the rapper wore clothing associated with a white supremacist group at his Yeezy fashion show in Paris, but did not make any public comment on West until Tuesday. Luxury retailer Balenciaga cut ties with West Friday, while his talent agency CAA dropped West Monday.

Crucial Quote

Sherman called it the “absolute right decision” for Adidas to disassociate with West as public opinion turned against the rapper, calling it the “right thing to do” long-term but noting the “toll” it takes on the company’s bottom line in the near term.

Big Number

27.5 times more. That’s how much more West netted from the Yeezy deal annually compared to Adidas’ chief executive Kasper Rorsted annual compensation. West made $220 million per year from the Adidas partnership, according to our estimates, while Rorsted brought home about $8 million last year.