Adidas AG intends to sell existing Yeezy product designs using its own branding after ending its partnership with rapper and designer Ye, formerly Kanye West.
Adidas management has indicated that it will start selling the products under the companys brand at the beginning of next year, according to analysts at Morgan Stanley and RBC Capital Markets. That follows the dissolution of the lucrative tie-up, which Adidas has described as one of the industrys most successful ever, after Ye made antisemitic comments.
Looking ahead, on our understanding, the company will not sell any Yeezy-branded products and all Yeezy products will be branded under Adidas brand, Morgan Stanley analyst Edouard Aubin said in a note to clients Tuesday.
The company has already been under pressure from investors over weaker demand in China and production delays. In speaking to analysts, Adidas focused on the potential upside of dissolving its partnership fewer expenses.
Adidas has the rights to existing Yeezy product designs and can sell these using Adidas branding (not Yeezy branding) following the termination of the Yeezy partnership, which Adidas intends to do in the first quarter of next year, RBC analyst Piral Dadhania said in a note. Speaking to the company, it believes it can limit the loss of revenues through this strategy, and will also save on expenses related to royalty and marketing fees no longer payable in 2023.
A spokesperson for Adidas didnt immediately respond to a request for comment.
In a statement Tuesday, Adidas condemned antisemitism and racism and said it would immediately end its relationship with Ye. The company said it would cease production of Yeezy-branded products and halt all payments to Ye and his businesses, but added that its the owner of the Yeezy design rights.
Adidas is the sole owner of all design rights to existing products as well as previous and new colorways under the partnership, the company said.
Adidas expects to absorb a 250 million ($247 million) hit to earnings this year due to the Ye breakup. Yeezys agreement with Adidas was set to run through 2026. Adidas shares fell 3.2% at the close of German trading.
We would expect to see further revenue, margin and earnings consensus downgrades following this latest installment of bad news at Adidas, RBCs Dadhania said. We are doubtful whether Adidas will be able to fully compensate for loss of Yeezy profits in 2023 which is likely to weigh on sentiment further in our view.
Gap Inc., which cut ties with Ye last month and began to wind down its Yeezy Gap apparel line, said Tuesday that it would pull all remaining merchandise and shut down its dedicated website.
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