Hapless Adidas Terminates Yeezy Deal; Financial Impact Unclear but Likely Reflected in Share Prices

After months of speculation and increasing public pressure, narrow-moat Adidas gave Kanye West (Ye) what he has wanted and terminated their heretofore successful partnership. While this move had recently become inevitable, its impact will be more severe than we had anticipated as Adidas has ended production of all Yeezy products and ceased royalty payments. We had previously expected that Adidas would continue to sell the items that were already in the pipeline, but this is not to be the case. The immediate impact is expected to be a EUR 250 million hit to Adidas’ fourth-quarter net income and comes on the heels of last week’s announcement that the company’s full-year net income would miss prior expectations due to weak results in greater China, excess inventory, and special charges related to the end of its operations in Russia and other factors. It now appears that Adidas’ 2022 net income on continuing operations will come in around EUR 250 million (about EUR 1.50 in EPS), down from the previously expected EUR 1.3 billion (about EUR 6.50).