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Adidas settles dispute with Kanye West

Yeezy Boost SPLY - 350
Image source: adidas.com

Adidas has reached an out-of-court settlement with Kanye West, resolving any legal claims associated with their past partnership without any monetary exchange between the two parties. This resolution concludes a complicated legal saga that began after the abrupt termination of the collaboration in 2022, following West’s controversial behavior and antisemitic remarks.

The Adidas-Yeezy partnership, which initially launched in 2013, was a significant driver of revenue for the German sportswear giant. However, the fallout from their separation has continued to cast a shadow over Adidas’s financials. The breakup left the company with a substantial backlog of unsold Yeezy products, some of which it has since released in limited batches.

Adidas CEO Bjørn Gulden, during a recent earnings call, confirmed that the settlement with West, also known as Ye, was finalized in the third quarter of 2024. Gulden emphasized that the agreement ensures neither side holds any further claims against the other. This allows Adidas to move forward from what had become a costly and controversial partnership, although the impact of the breakup still lingers.

Despite the financial strain caused by ending the collaboration, Adidas reported impressive third-quarter results. The company saw net profits rise by 71% to €443 million ($479 million), surpassing analysts’ expectations of €388.4 million, according to data from Visible Alpha. Total revenues climbed 7.3% to €6.44 billion, while operating profit surged 46% to €598 million, in line with the company’s previous forecasts.

The termination of the Yeezy deal was partly responsible for an 8.3% decline in sales in North America, a key market for the brand. However, Adidas managed to offset some of these losses by increasing revenue from other regions, particularly Asia, where sales grew 8.7%. Excluding Yeezy sales, the company’s North American revenue still showed growth, signaling resilience despite challenges.

Adidas has also revised its forecast for the remainder of the year, projecting operating profits of approximately €1.2 billion and a 10% revenue increase, adjusted for currency fluctuations. The forecast assumes that the remaining Yeezy inventory will sell at cost, contributing around €50 million in revenue but without significantly impacting profits.

Footwear sales were a notable bright spot, rising 14% on a currency-neutral basis, driven by strong demand for classic models like the Samba, Spezial, Campus, and Gazelle. These gains come amid heightened competition from emerging performance brands such as On and Hoka, as well as a cautious consumer environment.

The leadership of Bjørn Gulden, who took charge in 2023, has been pivotal in steering Adidas through this transitional phase, focusing on rebuilding brand momentum. The company’s recovery is happening at a time when its primary competitor, Nike, is facing significant challenges. Nike recently revised its financial guidance after experiencing a decline in sales and a leadership change, creating an opportunity for Adidas to further solidify its market position.

Analysts at RBC Capital Markets expressed optimism about Adidas’s prospects, suggesting that the company could maintain its current momentum into 2025. With Nike struggling to implement new product strategies, Adidas is well-positioned to capitalize on a less competitive landscape in the short term. This renewed focus, combined with the settlement of the Yeezy dispute, marks a new chapter for Adidas as it aims to strengthen its foothold in the global sportswear market.

Yeezy Boost SPLY - 350
Image source: adidas.com

Adidas has reached an out-of-court settlement with Kanye West, resolving any legal claims associated with their past partnership without any monetary exchange between the two parties. This resolution concludes a complicated legal saga that began after the abrupt termination of the collaboration in 2022, following West’s controversial behavior and antisemitic remarks.

The Adidas-Yeezy partnership, which initially launched in 2013, was a significant driver of revenue for the German sportswear giant. However, the fallout from their separation has continued to cast a shadow over Adidas’s financials. The breakup left the company with a substantial backlog of unsold Yeezy products, some of which it has since released in limited batches.

Adidas CEO Bjørn Gulden, during a recent earnings call, confirmed that the settlement with West, also known as Ye, was finalized in the third quarter of 2024. Gulden emphasized that the agreement ensures neither side holds any further claims against the other. This allows Adidas to move forward from what had become a costly and controversial partnership, although the impact of the breakup still lingers.

Despite the financial strain caused by ending the collaboration, Adidas reported impressive third-quarter results. The company saw net profits rise by 71% to €443 million ($479 million), surpassing analysts’ expectations of €388.4 million, according to data from Visible Alpha. Total revenues climbed 7.3% to €6.44 billion, while operating profit surged 46% to €598 million, in line with the company’s previous forecasts.

The termination of the Yeezy deal was partly responsible for an 8.3% decline in sales in North America, a key market for the brand. However, Adidas managed to offset some of these losses by increasing revenue from other regions, particularly Asia, where sales grew 8.7%. Excluding Yeezy sales, the company’s North American revenue still showed growth, signaling resilience despite challenges.

Adidas has also revised its forecast for the remainder of the year, projecting operating profits of approximately €1.2 billion and a 10% revenue increase, adjusted for currency fluctuations. The forecast assumes that the remaining Yeezy inventory will sell at cost, contributing around €50 million in revenue but without significantly impacting profits.

Footwear sales were a notable bright spot, rising 14% on a currency-neutral basis, driven by strong demand for classic models like the Samba, Spezial, Campus, and Gazelle. These gains come amid heightened competition from emerging performance brands such as On and Hoka, as well as a cautious consumer environment.

The leadership of Bjørn Gulden, who took charge in 2023, has been pivotal in steering Adidas through this transitional phase, focusing on rebuilding brand momentum. The company’s recovery is happening at a time when its primary competitor, Nike, is facing significant challenges. Nike recently revised its financial guidance after experiencing a decline in sales and a leadership change, creating an opportunity for Adidas to further solidify its market position.

Analysts at RBC Capital Markets expressed optimism about Adidas’s prospects, suggesting that the company could maintain its current momentum into 2025. With Nike struggling to implement new product strategies, Adidas is well-positioned to capitalize on a less competitive landscape in the short term. This renewed focus, combined with the settlement of the Yeezy dispute, marks a new chapter for Adidas as it aims to strengthen its foothold in the global sportswear market.

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