Adidas unexpectedly updated its financial guidance for the coming year, warning investors that the aftershocks of its dealing with Ye, the rapper formerly known as Kanye West, keep on coming.
If it does not sell the existing Yeezy stock, it could lower sales by $1.3 billion and reduce operating profit by $535 million.
Against that backdrop, the company is now predicting a sales decline in the high-single digits, with no profits at all.
And should it decide "not to repurpose any of the existing Yeezy product going forward," that will further lower profits.
Marketing Daily thinks commentaary by New York magazine's Matt Stieb is right: The company could donate the unsold merchandise, much as the NFL gives away all the swag made for the Super Bowl team that winds up losing.
We're thinking there are a lot of people in Turkey and Syria who would appreciate a pair of shoes right now.
Adidas also says it is spending more than $200 million on a strategic review, which it hopes will help it find its way back to profitable growth.
Still, there could be an operating loss of $750 million for the full year.
Adidas' stock fell as much as 11% on the news of its downturn.
It doesn't help that the company is now led by newcomer Bjørn Gulden, who left Puma to take the helm at Adidas at the beginning of January.
"The numbers speak for themselves," he said in the announcement. "We are currently not performing the way we should."
In the year ahead, "we will put full focus on the consumer, our athletes, our retail partners and our Adidas employees," hoping to recapture some "brand heat."
Even before this bombshell, observers have been growing skeptical about Adidas' prospects. Last month, Baird downgraded the company to a neutral rating. And back in November, Moody's cut its credit rating.
Adidas' "severe financial reset highlights that time is needed to fix the business," writes Jonathan Komp, an analyst who follows the company for Baird.
And it's not just Yeezy, but rough times for any athletic brand that isn't named Nike. "Commentary from Adidas, along with yesterday's cautious update from Under Armour and others, highlights a highly challenging current environment tied to uncertain demand, elevated channel inventory, and lower wholesale expectations," Komp says. "We suspect Nike's brand strength and own clearance actions may also be placing added pressure on secondary brands in the marketplace."