German company Adidas, the iconic sports equipment manufacturer, saw its shares fall dramatically at the end of last week.*
Adidas shares performance over 5 years. Source: tradingview.com
The company warned that it has 1.2 billion euros, or about 28.5 billion crowns, worth of unsaleable goods in inventory. These goods were produced under the brand Yeezy, in collaboration with American rapper Ye, also known as Kanye West.
The partnership between the German company and the rapper was terminated last October after Ye repeatedly made racist and anti-Semitic comments. Adidas had previously put a significant amount of capital into its Yeezy brand, which it clearly preferred. The bet on the American rapper's "brand" was initially successful, but ultimately proved to be the biggest marketing calamity in the company's history and one of the biggest of its kind in the entire sports industry.
Adidas expects sales to fall by several percent this year, while analysts had expected growth of four percent. The company's operating loss is expected to reach about 700 million euros, or 16.6 billion crowns, marking Adidas' first full-year loss in more than 30 years.
Adidas is also grappling with the question of what to do with clothing, footwear and other items bearing the Yeezy logo. The recent barrage of criticism, which industry insiders remember, is reminiscent of a situation five years ago when British luxury goods manufacturer Burberry burned about 800 million crowns worth of its products to prevent them from being sold below a price that would damage the brand. Therefore, Adidas must decide how to deal with these goods.
* Past performance is no guarantee of future results.
Costco (COST) recently reported mostly positive fiscal second-quarter earnings, despite shares dropping over 2% after the announcement.*
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