ADDYY Adidas AG (QX)

By Joshua Kirby

Adidas again cut revenue and earnings guidance for the year to account for the end of its Yeezy label partnership with designer Kanye West, adding to the financial challenges that have weighed heavily on the company throughout 2022, but said it expects a recovery in earnings next year.

The German sporting-goods giant now expects group revenue to grow by a low-single-digit percentage at constant currency, from previous guidance in the mid single digits, it said Wednesday. Net profit from continuing operations should come in at around 250 million euros ($251.9 million), half what it previously expected, with a gross margin of 47% and operating margin of just 2.5%, Adidas said.

The revision is the fourth time this year Adidas has lowered its outlook for 2022, and comes after last month's end to the lucrative Yeezy collaboration following a string of controversies including a recent anti-Semitic outburst from rapper Mr. West.

Earlier in October, Adidas 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.

The subsequent termination of the Yeezy line would drag earnings by around EUR250 million, Adidas said at the time, noting the brand's high seasonality.

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. Amid a series of disappointing results, Adidas said in August that Chief Executive Kasper Rorsted would leave the company. On Tuesday, the company said that the CEO of rival sportswear maker Puma SE, Bjorn Gulden, will take the helm at the beginning of the new year, with Mr. Rorsted to step down at the end of this week.

Adidas meanwhile confirmed that third-quarter sales rose 4% organically to EUR6.41 billion amid slowing demand in Western markets, as set out in preliminary figures 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%.

Net income from continuing operations meanwhile fell sharply to EUR66 million, weighed by the Yeezy split as well as a hit of nearly EUR300 million from one-off costs largely relating to the group's exit from Russia, Adidas said.

The company said it expects to see a rebound in the bottom line in 2023, however. The Russia-related costs, totaling some EUR500 million, won't recur, while a program to cushion inflation and higher costs should boost earnings by some EUR200 million, Adidas said.

Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby

(END) Dow Jones Newswires

November 09, 2022 02:52 ET (07:52 GMT)

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