Adidas is cutting ties with Kanye “Ye” West, the founder of the Yeezy brand, after the designer made repeated antisemitic comments in recent weeks.
The move will have a short-term negative impact of up to 250 million euros on the company’s net income in 2022, given the high seasonality of the fourth quarter, Adidas said. Morningstar analyst David Swartz had previously estimated that Yeezy brought in close to $2 billion a year, or close to 10% of Adidas’ total revenues.
That loss comes on top of an already lowered outlook for 2022, which Adidas announced last week. Adidas plans to discuss the news in more detail in its earnings call on Nov. 9.
Shares of Adidas were down more than 2% as of noon on Tuesday.
While the dissolution of Adidas Yeezy will certainly leave a hole in the German sportswear brand, analysts were not entirely pessimistic about the overall outlook for Adidas. For starters, Adidas confirmed it is the sole owner of all design rights to existing products, as well as previous and new colorways under the partnership, indicating a desire to continue selling products unattached to Ye.
“The company expects to re-brand certain product (we think likely under Originals business) to help limit the sales/profit impacts on a go-forward basis beginning in 2023,” said Baird analyst Jonathan Komp in a Tuesday note, adding that the Adidas stock poses less risk now that it doesn’t include Yeezy estimates.
According to a note from RBC Capital Markets, Adidas plans to start selling Adidas-branded Yeezy designs in the first quarter of 2023 to help mitigate revenue loss.
Even without Yeezy, Adidas ships more than 300 million shoes per year and has a revenue base of about 20 billion euros, Swartz noted.
“Adidas’ status as a global sportswear brand, the source of our narrow-moat rating, has never been dependent on Yeezy,” Swartz said. “While the decision to end the Yeezy deal was painful, it was necessary and will not bring any risk of financial distress.”
Given the strong public reaction to Ye’s recent behavior, it is also plausible that Yeezy sales would have suffered moving forward anyway, explained managing director of GlobalData Neil Saunders in a statement.
Moving forward, Adidas will need to lean into other categories and product lines, reorganize that section of the business and shift its factory operations to fill in the gap of Yeezy, explained Liza Amlani, principal and founder of consulting company Retail Strategy Group. Even so, she predicted Adidas is likely strong enough to get through the challenge. “The end of the Yeezy partnership will put a dent in revenues, but I have no doubt that Adidas will recover,” Amlani said. “It will take time, but this move was the right move.”