Adidas AG (OTCMKTS:ADDYY) (FRA:ADS) (ETR:ADS) is due to announce earnings at 1 am tomorrow morning. News from ESPN today suggests that the rest of the year might be a struggle for the company, as it face the cancellation of contracts and licensing deals on concerns about the company’s worker rights in its manufacturing centers.
According to the ESPN post, last week seventeen third level institutions in the united States cancelled their contracts with Adidas AG (OTCMKTS:ADDYY) (FRA:ADS) (ETR:ADS). The schools which have already cancelled contracts with the company are Cornell, Rutgers, Washington, Georgetown, University of Montana, Santa Clara University, College of William and Mary, Northeastern University, Temple University and Washington State.
The dispute centers around compensation at one of the company’s factories in Indonesia. PT Kizone, a factory that manufactures products for Adidas AG (OTCMKTS:ADDYY) (FRA:ADS) (ETR:ADS) and Nike Inc. (NYSE:NKE), saw multiple closures, work stoppages, and eventually its owner’s flight from Indonesia and the bankruptcy of the factory.
The workers at the factory were not compensated, and the schools decided to take a stand. That stand is certain to hurt Adidas AG (OTCMKTS:ADDYY) (FRA:ADS) (ETR:ADS) products, and profits. Adidas AG began receiving threats from Michigan and Wisconsin State Universities earlier in April. Unlike many of the other schools involved in the protest, both of those have all-in contracts worth millions with Adidas AG.
After those threats were made, Adidas AG (OTCMKTS:ADDYY) (FRA:ADS) (ETR:ADS) began to come around and things got a little better for the employees of the Indonesian factory. There is still a dispute about when exactly the company stopped having its products manufactured at the factory and how much responsibility it has for the treatment of the workers.
Adidas AG (OTCMKTS:ADDYY) (FRA:ADS) (ETR:ADS) has felt the brunt of public opinion arising from its treatment of workers. This isn’t the first time something like this has happened, and as long as inconsistent campaigns continue to run, the company will get away with nine abuses out of every ten it commits. This particular incident is likely to be forgotten in months.
Adidas AG (OTCMKTS:ADDYY) (FRA:ADS) (ETR:ADS) shares have gained more than 18 percent so far this year on their home index. On Thursday, before the company announced its earnings for the first quarter of 2013, shares in the company traded up a fraction before closing at 79.63 Euro per share.