Adidas (ADS) shares have been under pressure after revealing a significant stockpile of unsold Kanye West merchandise.
ADS – Daily Chart
Adidas (ADS) stock dumped through the 150 level and has since found a bottom near the 138 level. Traders should watch for a failure here that would reignite the downside and aim for the 120 level.
Adidas announced that it could lose around 1.2 billion euros ($1.3 billion) in revenue in 2023 if it cannot sell its existing “Yeezy” stock. The German sportswear giant scrapped its partnership with the controversial rapper Kanye West back in October after he made a series of antisemitic comments.
The company said it was assessing what to do with the extra inventory, adding that it has already accounted for the “significant adverse impact” of not selling the products. Operating profit would drop by around 500 million euros if the company failed to shift the products, and Adidas now expects sales to decline at a high single-digit rate in 2023. The company may choose to simply write off the remaining Yeezy products.
Shares dropped over 11% in one day on the announcement and have found a base at 138.00 euros. Adidas also forecast one-off costs of up to 200 million euros, leaving Adidas’ worst-case scenario for the year as a 700 million euro loss for 2023.
“The numbers speak for themselves. We are currently not performing as we should,” Adidas CEO Bjørn Gulden said recently. Based on unaudited numbers, Adidas revenues increased by 1% in 2022, while operating profit sharply decreased from almost 2 billion euros in 2021 to 669 million euros in 2022.
The negative sentiment also led to a debt downgrade from the stock. “Adidas faces a multitude of business challenges, including the termination of its Yeezy partnership, ongoing competitive pressures in the Chinese market, and a contraction of consumer demand in Western countries,” ratings agency S&P said.
Traders can take advantage of the negative sentiment with a short move if the stock loses momentum in the coming days or weeks. Traders can look for volatility in the $95-105 range, while investors can look for a bottom at the lower end between that range.
