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Adidas has initiated a hiring freeze but suggested it does not plan to conduct layoffs after it cut ties with hip-hop mogul Ye, forfeiting a multibillion-dollar business that had become increasingly problematic in recent weeks.
“This is not up for discussion. We need our employees’ talent and skills within the organization,” said Adidas spokesperson Rich Efrus when asked whether the company would be firing workers, indicating that Adidas instead plans to reassign employees who worked on Ye-branded Yeezy sneaker and apparel business to other areas of the organization. Efrus confirmed that the company has instituted a hiring freeze.
The German footwear giant is in difficult territory. It stands to lose some $250 million in profits this year by walking away from Ye, formerly known as Kanye West, just ahead of the all-important holiday season. The Yeezy line brings in some 4% to 8% of the company’s annual revenues, according to investment bank Cowen.
“The impact of this move will be more severe than anticipated as Adidas has ended production of all Yeezy products and ceased royalty payments,” wrote Morningstar analyst David Swartz. He estimates that Yeezy could generate an even higher percentage of its net income, perhaps 10% to 15%, because it commands high prices at retail.
The breakup comes on the heels of a profit warning issued last week, with the company telling investors that profits will be lower than expected this year because of declining consumer demand in China, the U.S. and Europe. The company is also grappling with a mountain of unsold goods that may have to be discounted. Adidas will also incur costs associated with winding down its operations in Russia.
The company’s stock has plummeted, shedding some two-thirds of its value this year and 69% in the past 12 months. By comparison, the S&P 500 is down 16% in the past year.
While the company has leaned on Ye to gain favor and credibility among a generation of young customers, even without Yeezy, it still ships more than 300 million shoes per year, said Swartz. The company, which employs over 60,000 people, generated more than $20 billion in sales last year.
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