Adidas (ADSGn.DE) further slashed its outlook for 2022 on Wednesday as it weighed the impact of its split from Ye, the rapper formerly known as Kanye West, while sluggish demand in China continued to impact sales. [Adidas slashes 2022 outlook after Kanye West split - Reuters]
- Revises down FY operating margin to 2.5%
- Outlook reflects "high seasonality" of Yeezy business
- Q3 sales drops 27% in China
- Shares down 2.1% in pre-market trade
On October 20, Adidas announced preliminary results for the third quarter and reduced its full-year 2022 guidance. The company’s new outlook took into account a further deterioration of traffic trends in Greater China as well as a significant inventory build-up as a result of lower consumer demand in major Western markets since the beginning of September, which is expected to lead to higher promotional activity during the remainder of 2022.
On October 25, the company ended its relationship with Ye after the musician launched a series of offensive and antisemitic tirades on social media and in interviews. In its third-quarter statement Wednesday, Adidas highlighted healthy growth in markets outside China.
The results arrived a day after Adidas announced that Puma’s former CEO, Bjorn Gulden, will replace Kasper Rorsted at the start of 2023.
Major Developments
- Currency-neutral sales up 4 percent, reflecting continued double-digit growth outside Greater China;
- Double-digit growth in e-commerce in EMEA, North America, and Latin America;
- Gross margin down 1.0pp to 49.1 percent as price increases were more than offset by increased supply chain costs, higher discounting, and an unfavorable market mix;
- Operating profit of €564 million reflecting an operating margin of 8.8 percent;
- Net income from continuing operations of €66 million was negatively impacted by several one-off costs totaling almost €300 million as well as extraordinary tax effects in Q3; and
- Impact from termination of Adidas Yeezy partnership incorporated into 2022 outlook.
