Adidas (ADDYY) is under fire Thursday for not cutting ties with Yeezy creator Kanye West over his widely criticized comments earlier this week about slavery, just as the sportswear brand's first-quarter report suggests it's losing momentum in the key North America market.
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Kanye Comments
West, who has been designing his Yeezy brand footwear for Adidas since 2013, riled up the cybersphere Tuesday after alluding to entertainment news outlet TMZ that slavery might have been a "choice."
"When you hear about slavery for 400 years — for 400 years?! That sounds like a choice," he said.
Adidas tried to distance itself from his comments without cutting ties with the rapper himself.
"Kanye has been, and is, a very important part of our strategy and has been a fantastic creator, and that's where I'm going to leave it," Adidas CEO Kasper Rorsted told Bloomberg TV. "I'm not going to comment on every comment that he or somebody else are making. That's pretty much the party line at this stage."
But Rorsted told analysts on the earnings call "there are some remarks that we don't support," according to Reuters. Separately, he acknowledged West's optics contribution to Adidas' brand image while noting that the rapper has a limited sales impact on the No. 2 sports apparel and footwear player in the world.
"While Kanye is a very important part of the Adidas brand, Adidas is a large global company that (has) a very, very strong presence around the world and will continue to perform well," Rorsted said. However, Kanye and Yeezy's significance to the company was "less so" from a revenue perspective.
It's not clear how widespread the damage from West's comments could be, but at least one analyst sees potential harm for the Adidas brand.
"Kanye West's recent controversial comments could create backlash among core Adidas consumers and toward the Yeezy brand in particular," wrote Cowen's John Kernan.
Twitter is aflame with criticism of both Adidas and Kanye. There is a petition circulating, calling for Adidas to drop Kanye from its endorsement roster.
Adidas isn't dropping "slavery's a choice" Kanye but they won't sign Colin Kaepernick unless he's on a team. Keep it.
— Ira Madison III (@ira) May 3, 2018
Kanye has not weighed in yet on Adidas' reaction, at least online, but tweeted last week that his success with Yeezy wouldn't have been possible at Adidas' rival Nike (NKE).
adidas have been great partners and they've let Yeezy be Yeezy. This could've never happened at Nike
— KANYE WEST (@kanyewest) April 25, 2018
Oh, Right: Earnings
The Kanye West controversy is overshadowing Adidas' earnings, released early Thursday, in which currency-neutral revenue rose 10% in the first-quarter, including 21% growth in North America.
Where Under Armour (UAA) and Nike have labored to power forward with American shoppers, Adidas has been enjoying a multiyear resurgence, particularly with younger shoppers.
But Adidas' Q1 North America growth marked a slowdown from the prior quarter, said Jefferies analyst Randal Konik, who believes that the brand's sales growth in the key region peaked in Q4.
"The North America peak is here for Adidas," he wrote in a note to clients.
Athleisure-loving fashionistas have been the focus of sartorial trends, boosting sales of nostalgia-driven streetwear in particular and embracing Adidas' retro classics, such as the Superstar shoe.
"However, Stan Smith and Superstar sales trends have slowed meaningfully which shows fashion offerings are fading in favor of performance," said Konik. "In a performance-driven athleisure environment Adidas is less well positioned while Nike and Under Armour are best positioned."
Adidas said its online sales were its fastest-growing business, up 27%. Gross margin rose 1.5% despite being up against a "significant currency headwind" during the quarter.
Reebok remains a weak spot, sliding 3% overall in Q1.
Management reiterated its fiscal 2018 guidance for 10% currency-neutral sales growth, "driven by double-digit growth in North America and Asia-Pacific," and 12%-16% gains in basic per-share earnings from continuing operations.
Adidas sank 5.35% in the stock market today, to 117.37, closing below the 50-day moving average but above the prior 116.94 buy point. But Adidas fell to 115.37 intraday, roundtripping a 14% gain from the entry. A 10% roundtrip is an automatic sell signal that invalidates the old buy point.
Nike fell 2%, finding support at the 50-day line. Under Armour tumbled 5.4% after flirting with a bottoming base buy point on Wednesday.
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The post Kanye West Controversy Could Hit Adidas At A Really Bad Time appeared first on Investor's Business Daily.
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