Adidas has its debt rating slashed by S&P as termination of Kanye West partnership batters earnings
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- S&P Global Ratings said Tuesday that it thinks Adidas will find it harder to repay its debts.
- The sportswear giant has warned it'll lose $1.3 billion from the end of its Yeezy partnership.
- Adidas terminated its deal with Kanye West in October after repeated anti-semitic comments.
S&P Global Ratings has cut its long- and short-term credit ratings for Adidas after the German sportswear giant warned that the end of its partnership with Kanye West is likely to hammer earnings.
The agency, which judges companies' ability to pay back borrowings, downgraded its debt ranking for Adidas from "A+" to "A-" Tuesday and warned that that score could fall again soon.
"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," S&P said in a statement.
Adidas ended its partnership with Ye, the rapper and fashion designer formerly known as Kanye West, in October after he made a string of anti-semitic comments on Twitter and in an unaired interview with Tucker Carlson for Fox News.
In a profit warning issued on February 9, the company warned that the demise of the deal would reduce its earnings by €1.2 billion ($1.3 billion) this year.
"Yeezy" shoes were expected to account for around 7% of all Adidas sales in 2022, according to S&P's statement.
Adidas is also struggling to overtake rival brands like Anta in China and could see its total sales come under pressure in the west as well if a recession curbs consumer spending.
S&P isn't alone in sharing a gloomy outlook for Adidas.
Bernstein Research warned earlier this month that the brand could see sales fall by $2 billion in 2023 – suggesting it'd have struggled even if its partnership with Ye hadn't imploded.
"The sales decline is about more than just Yeezy," Bernstein analyst Aneesha Sherman said in a note to clients.
"We are concerned about the underlying health of the business that would drive such a drastic guide-down, even after stripping out the Yeezy impact."
Adidas' main listing is on Frankfurt's DAX 40 index but US-based investors can buy its American depositary receipts if they want to own shares in the company.
Shares have climbed 8% year-to-date and 47% since the company cut ties with Ye on October 25.
Read more: Adidas is facing a problem even bigger than Yeezy
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