Adidas
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Adidas says it is investigating allegations of inappropriate workplace conduct by the rapper formerly known as Kanye West that ex-employees made in an anonymous letter also accusing the German sportswear brand of looking the other way.
Adidas, which made his Yeezy line, cut ties with Ye last month over his offensive and antisemitic remarks after facing pressure to follow other brands and companies in ending partnerships with the rapper. It said it expected to take a hit of 250 million euros ($246 million) to its net income this year from the move.
Ye was suspended from Twitter and Instagram over his remarks but has been back tweeting this month.
Rolling Stone has reported that it spoke to more than two dozen former Yeezy and Adidas workers and obtained a letter from several former Yeezy employees to the sportswear company alleging that Ye created a toxic work environment by showing sexual photos and videos in meetings, making vulgar comments and bullying the people who worked for him. All the former employees spoke to the magazine on condition of anonymity.
The letter accused the company of knowing about the problematic behavior and failing to protect employees.
“It is currently not clear whether the accusations made in an anonymous letter are true. However, we take these allegations very seriously and have taken the decision to launch an independent investigation of the matter immediately to address the allegations,” Claudia Lange, head of media relations for Adidas, said in a statement Friday (Nov. 25).
She said the company was not sharing more details about the investigation for now.
Ye’s last known music and personal representatives didn’t immediately respond to emails seeking comment.
Adidas also addressed Ye’s previous remarks that led the company to sever its relationship with him, saying Friday that it “does not tolerate hate speech and offensive behavior and therefore has terminated the adidas Yeezy partnership.”
“We have been and continue to be actively engaged in conversations with our employees about the events that lead (sic) to our decision to end the partnership,” Lange said in the statement. “They have our full support and as we’re working through the details of the termination.”
The company, which named a new CEO this month in a sped-up timeline for a power transfer, said it owns the rights to product designs except for the Yeezy name and is developing plans for what to do with existing inventory.
Adidas on Wednesday lowered its earnings forecast for the year to account for losses from ending its partnership with the rapper formerly known as Kanye West over his antisemitic remarks.
The German shoe and sportswear maker cut its sales and profit outlook for the year as part of its third-quarter earnings statement, even as the company’s chief financial officer said the profitability of the Yeezy shoe collaboration with Ye had been “overstated.” The company would largely offset the impact of the breakup next year by no longer having to pay royalties and marketing fees for the brand, CFO Harm Ohlmeyer said.
The company halved its expectations for net profit from continuing operations to 250 million euros ($252 million) this year from 500 million euros. That matched its earlier statement that ending the partnership with Ye would cost it 250 million euros in profits.
Adidas also lowered its revenue forecast for the year to a low single-digit increase from a mid-single-digit increase.
The Oct. 25 split with Ye, with production of all Yeezy products halted and royalty payments ended, will leave Adidas searching for another star to help it compete with ever-larger rival Nike. Adidas also is facing internal upheaval, with its CEO Kasper Rorsted stepping down Friday. He was previously expected to hand over next year, but the company announced the quicker change on Tuesday as it named Puma CEO Bjørn Gulden as his replacement.
Adidas faced pressure to split with Ye as other brands did earlier over the rapper’s antisemitic comments in interviews and social media, including a Twitter post earlier this month that he would soon go “death con 3 on JEWISH PEOPLE,” an apparent reference to the U.S. defense readiness condition scale known as DEFCON. He was suspended from both Twitter and Instagram.
Adidas owns the rights to product designs except for the Yeezy name and is developing plans for what to do with existing inventory.
Ohlmeyer said on a conference call with reporters that the profitability of the Yeezy business had been overstated because its costs only included expenses directly related to the products and not central overhead costs borne by the company.
“In other words, it does not include any further central cost allocation for sourcing, digital, retail, or any other services that this part of our business has been benefitting from and that were essential for its success,” Ohlmeyer said.
“At the same time, we will save around 300 million euros related to royalties and marketing fees; in combination, this will help us to compensate the majority of the top and bottom line impact in 2023,” he said.
The Yeezy brand accounted for up to 15% of Adidas’ net income, Morningstar analyst David Swartz said in a note Oct. 26.
The company had already cut its full-year earnings forecasts five days before announcing its split with Ye. The earlier outlook revision cited slowing activity in China, where severe restrictions aimed at limiting the spread of COVID-19 have held back the economy, and clearance of elevated inventory levels.
Net income for the third quarter from continuing operations was 66 million euros, down from 479 million euros in the same quarter a year ago.
The decrease largely reflected 300 million euros in one-time costs, the majority of it from winding down the company’s business in Russia.
Adidas may have severed ties with Kanye West, but it looks like they’ll still be selling the remainder of his Yeezy products — just without his name attached to them.
According to reporting by Bloomberg, the athletic brand’s parent company Adidas AG will rebrand all Yeezy designs under the Adidas brand at the start of 2023. “Looking ahead, on our understanding, the company will not sell any Yeezy-branded products and all Yeezy products will be branded under Adidas brand,” said Morgan Stanley analyst Edouard Aubin in a note to his clients on Tuesday.
“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,” RBC analyst Piral Dadhania added in a separate statement. “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.”
Per Bloomberg, a rep for Adidas didn’t respond to the financial outlet’s request for comment on the news, which broke the same day Adidas issued a statement about dropping Ye following his recent barrage of antisemitic comments in the media. “Adidas does not tolerate antisemitism and any other sort of hate speech,” the company said. “Ye’s recent comments and actions have been unacceptable, hateful and dangerous, and they violate the company’s values of diversity and inclusion, mutual respect and fairness.”
Other brands and companies that have ended their relationships with West in the aftermath include Gap, Balenciaga, Foot Locker, TJ Maxx, CAA and more. Find a full list of the consequences West has faced here.