After warnings from Kanye West that their partnership would end, S&P Global Ratings reduced its short-term and long-term credit ratings for Adidas.
The agency evaluates companies’ ability repay borrowings and downgraded Adidas’ debt rating from “A+ to “A-” Tuesday. It warned that this score could drop again.
S&P stated in a statement that Adidas faces a variety of business challenges including the end of its Yeezy partnership and ongoing competitive pressures on the Chinese market. There is also a contraction in consumer demand in Western nations.
Adidas cut ties with Ye, the fashion designer and rapper formerly known under Kanye West in October. He made anti-semitic comments via Twitter and in an interview with Tucker Carlson, Fox News.
The company issued a profit warning on February 9 that warned that the deal’s demise would result in a reduction of its earnings of EUR1.2 billion ($1.3 million) each year.
According to S&P, “Yeezy” shoes will account for approximately 7% of all Adidas sales by 2022.
Adidas is also struggling in China to catch up with Anta, a rival brand. It could also see its total sales fall if there’s a slump in consumer spending.
S&P doesn’t share the same gloomy outlook on Adidas as S&P.
Bernstein Research had warned this month that the brand could experience a drop in sales of $2 billion by 2023. This suggests it would have trouble even if Ye’s partnership hadn’t collapsed.
Aneesha Sherman, Bernstein analyst, stated in a note to clients that the sales decline is more than just Yeezy.
“We are concerned about how the underlying health would drive such a drastic guidedown, even after stripping the Yeezy effect.”
Adidas’ main listing on Frankfurt’s -DAX 40 Index is where it’s listed. However, US-based investors can purchase its American depositary receipts to get shares.
Since October 25, when Ye cut ties with the company, shares have risen by 8% and 47% respectively.