Due to the German sportswear giant’s termination of its partnership with Kanye West’s Yeezy brand, Adidas on Wednesday lowered its full-year guidance.

Ye, formerly known as Kanye West, had a contract with the company terminated on October 25 as a result of the musician’s offensive and antisemitic tirades on social media and in interviews.

Adidas has reduced its target of approximately 500 million euros set on October 20 to an anticipated net income from continuing operations of around 250 million euros ($251.56 million). The company now anticipates low single-digit revenue growth in 2022, currency-neutral, with a gross margin of roughly 47% for the year.

Adidas reported third-quarter currency-neutral sales growth of 4% year over year, with double-digit e-commerce growth in the EMEA, North America, and Latin America. Due to “higher supply chain costs, higher discounting, and an unfavorable market mix,” the company said, gross margin decreased by one percentage point to 49.1%.

Operating profit was 564 million euros, while continuing operations’ net income was only 66 million euros, down from 479 million euros a year earlier. According to Adidas, this was due to “extraordinary tax effects in Q3 as well as a number of one-off costs totaling almost 300 million.”

“This amount differs from the preliminary figure published on October 20, 2022, due to negative tax implications in the third quarter related to the company’s decision to terminate the adidas Yeezy partnership. This negative tax effect will be fully compensated by a positive tax effect of similar size in Q4,” Adidas said.

The business also disclosed that, as a result of “further deterioration of traffic trends in Greater China, higher clearance activity to reduce elevated inventory levels as well as total one-off costs of around 500 million euros,” it had already reduced its full-year guidance on Oct. 20.

“The market environment shifted at the beginning of September as consumer demand in Western markets slowed and traffic trends in Greater China further deteriorated,” Adidas CFO Harm Ohlmeyer said in a statement.

“As a result, we saw a significant inventory buildup across the industry, leading to higher promotional activity during the remainder of the year which will increasingly weigh on our earnings.”

Ohlmeyer claimed that “noticeable” excitement in the run-up to the FIFA World Cup in Qatar later this month had “encouraged” the business.

(Adapted from CNBC.com)

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