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Adidas makes tracks in its post-Kanye recovery

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Shares in Adidas rose 5 per cent on Wednesday after the company raised its full-year guidance for the second time in three months, indicating that the brand is recovering from its worst crisis in three decades.

The group has been dealing with fallout from its decision to end a highly profitable collaboration with controversial US rapper and fashion designer Kanye West a year ago, following a number of antisemitic remarks by the celebrity also known as Ye.

Following the scandal, Adidas replaced its chief executive as its share price fell to the lowest level in more than six years. However, since January, the stock has risen more than a third, turning the world’s second-largest sportswear maker into one of Germany’s best performing blue-chips in 2023.

After a better than expected third quarter, Adidas said it was expecting a drop in annual sales “at a low single-digit rate in 2023”, compared with its previous guidance of a mid single-digit rate.

In February, Adidas worried investors by warning the company might report an annual loss of up to €700mn this year, its first loss for 31 years. That figure was reduced to €450mn in August and has now been cut further to €100mn.

The company added that any operating loss in 2023 would be caused by one-off costs and potential writedowns on its remaining stock of unsold “Yeezy” branded shoes. After a second sale of Yeezy stock this summer, the company said it still had products with a book value of €300mn, compared with €500mn before the first sale.

Excluding one-offs, the company said it was on track for a €100mn operating profit this year.

In a preliminary earnings disclosure on Monday evening, Adidas said that its underlying business had “developed better than expected”, adding that sales and profits had been boosted by ongoing sales of its remaining Yeezy stock.

Overall revenue in the third quarter fell 6 per cent year on year to €6bn, while operating profit was €409mn.

Adam Cochrane, a Deutsche Bank analyst, wrote in a note to clients that the positive momentum in the third quarter confirmed that Adidas was “still in the early stages of its turnaround”.

In August, Adidas said it would donate €110mn to charity after its first Yeezy sale. It now says that its second sale over the summer was also a success, but has not disclosed details or potential charity donations.

New chief executive Bjørn Gulden, who was poached from rival Puma, caused an outcry last month when he appeared to defend the rapper, telling a podcast he thought Ye did not mean what he said and was not a “bad person”.

He later apologised for his “misstatements”, the head of the Anti-Defamation League Jonathan Greenblatt wrote on X. Gulden told the Financial Times that the group’s decision to end the partnership with Ye “was absolutely appropriate and our attitude has not changed”.

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