Adidas to sell shoes based on Yeezy designs following break with Kanye West

Bloomberg
Bloomberg

Summary

  • German sportswear brand is the sole owner of all rights to existing products, except the Yeezy name

Adidas AG said it would start selling shoes based on Yeezy designs in a bid to rebound after scrapping the lucrative partnership with musician and designer Kanye West that had spawned one of the company’s most successful product lines.

Finance chief Harm Ohlmeyer said the sporting-goods giant was the sole owner of all rights to existing products, except from the Yeezy name, and that the company intended to make use of those rights as early as the end of next year.

“We own all the IP, we own all the designs, we own all the versions and new colorways, so it’s our IP, it’s our product," Mr. Ohlmeyer said. “We believe there are interesting things coming to fruition in ‘23, that’s what we’re working through," he added.

He said the company was reviewing whether to sell existing Yeezy inventory, with the exact plans still being worked out.

Adidas ended the Yeezy venture with Mr. West following a string of controversies including a recent anti-Semitic outburst by the artist, who goes by Ye.

On Wednesday, the sportswear company again cut its earnings and revenue guidance for the year to account for the end of the partnership. The move will result in a sales hit of 500 million euros, equivalent to $503.7 million, while net income could drop by as much as €250 million in the fourth quarter, the company said. Sales of the Yeezy brand are disproportionately weighted toward the fourth quarter.

“There is some inventory that will help us compensate in ‘23," Mr. Ohlmeyer said. “We need to take our time to review what are the best options, and there are several options that we’re working through."

The German company Tuesday tapped Bjørn Gulden, the departing head of crosstown rival Puma SE, to take over as chief executive. Mr. Gulden will have to address an array of problems plaguing Adidas around the world, including falling market share in the key Chinese market, suspended operations in Russia and stubborn supply-chain problems.

One immediate challenge will be to contain the fallout from Adidas’s split with Mr. West. The items that the rapper designed in collaboration with the company made their debut in 2015 and the parties entered a long-term partnership the following year. The sportswear giant underwrote the artist’s collections, which quickly became seen as can’t miss fashion-week events with stars such as Beyoncé and Rihanna in attendance.

The Yeezy partnership eventually grew to represent around 8% of the group’s revenue, or more than €1.7 billion in sales last year, analysts say. UBS analysts estimate that without the Yeezy collection the company’s sales have grown 1%-a-year on average since 2017.

On Oct. 6, Adidas put its partnership with Mr. West under review, saying its decision came after repeated attempts to privately resolve disputes with him. It ended the collaboration three weeks later.

Some analysts have questioned whether continuing to sell Yeezy designs was the right decision, saying that reputational risks associated with the Yeezy line—even rebranded—remained high.

“The Yeezy line might forever remain associated with a controversial and provocative artist and Adidas should instead focus on newness in our view," analysts at Citi said.

At group level, Adidas now expects an operating margin of 2.5% for the year, down from previous guidance of 4%, it said Wednesday. Net profit from continuing operations meanwhile should come in at around €250 million, half what it previously expected. Revenue for the year is expected to increase by a low-single-digit percentage at constant currency, from previous guidance in the mid single digits.

The updated guidance represents the fourth time this year that Adidas has lowered its outlook for 2022. Earlier in October, the company cut its profit guidance for the year, pointing to one-off costs from an exit from Russia, and said revenue and margins would be squeezed by consumer pressures in Western markets and soaring inventory levels.

Previously in the year, Adidas warned of lower top-line growth and profitability as it struggled to recover in the Covid-19 pandemic-hit China market.

Adidas confirmed that third-quarter sales rose 4% organically to €6.41 billion amid slowing demand in Western markets, as set out in preliminary figures it released last month. The gross margin contracted on year to 49.1% as a result of higher supply costs and discounting measures, while the operating margin fell nearly three points to 8.8%.

This story has been published from a wire agency feed without modifications to the text

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