Adidas flagged that it expects a high single-digit decline in sales this year, sending its shares more than 10% lower in premarket trade early on Friday.
The sporting goods maker, which last October put its business partnership with rapper and fashion designer Kanye West under review, said late on Thursday that not selling its existing Yeezy stock could reduce revenue by around 1.2 billion euros ($1.29 billion) in 2023 and operating profit by about 500 million euros to around break-even.
Analysts on average had expected a 4% rise in 2023 revenue on a currency-neutral basis and operating profit of 1.02 billion euros, according to a consensus published on Adidas' website.
"While the company continues to review future options for the utilisation of its Yeezy inventory, this guidance already accounts for the significant adverse impact from not selling the existing stock," it said in a statement.
Baader Helvea said the outlook was "horrible" and very disappointing.
The news came as it missed its own forecasts with a rise of just 1% in 2022 revenue in currency-neutral terms.
Adidas said that writing off the Yeezy inventory altogether would lead to an additional 500 million euro drop in operating profit along with one-off costs in 2023 of up to 200 million euros as part of a review to return to profitable growth in 2024.
That amounted to a worst-case scenario of a 700 million euro loss this year, the group warned.
Jefferies cut its recommendation on Adidas stock to "hold" from "buy", citing "challenges in articulating the mid-term profit delivery".
Adidas had lowered its full-year forecast in October to mid-single digit percentage revenue growth and a 4% operating margin in light of weaker demand in China and Western markets and one-off expenses related to exiting from Russia.
But Thursday's results showed the company had fared worse than it expected, yielding an operating margin of 3%.
It will report full results for the year on March 8.
($1 = 0.9307 euros) (Reporting by Victoria Waldersee and Maria Sheahan; editing by Kirsten Donovan and Jason Neely)