Because of the corona lockdown in China
Adidas struggles with low sales
05/06/2022 10:29 am
China is one of the most important sales markets for Adidas. Because of the lockdowns in many Chinese cities, the shops are now closed. The sporting goods manufacturer has to reduce its sales forecast significantly – but it still has an ace up its sleeve.
After a disproportionate drop in profits in the first quarter, Adidas lowered its margin forecasts for the year as a whole and sees them only at the previous year’s level. In terms of sales and profits, the sporting goods company expects to only reach the lower end of the forecast. The reason is the clear effects of the new Covid 19 lockdowns in China, as a result of which the group now expects sales in the important and high-margin Chinese market to “fall sharply” in 2022. In the quarter, sales in China were down 35 percent, and supply chain bottlenecks and freight costs also weighed on the company.
The group now sees the gross margin at the previous year’s level of 50.7 (instead of 51.5 to 52.0) percent, the operating margin at 9.4 (instead of 10.5 to 11.0) percent. After-tax profit from continuing operations is expected to be at the lower end of the range of EUR 1.8 to 1.9 billion. The DAX group justified this with the now expected decline in sales in the high-margin China business, whereby investments in brands, products, direct business and digitization are to be continued. For the year as a whole, the sporting goods manufacturer now wants to increase currency-adjusted sales in the lower part of the range of 11 to 13 percent.
The sales forecast now assumes that sales in China will “fall sharply” in the current fiscal year. The reason is the “recent extensive corona lockdowns in China, which have led to numerous store closures and a decline in customer numbers even in parts of the country that are not directly affected”. Nevertheless, the group expects a return to sales growth as early as the second quarter, despite the continued sales decline in China and an estimated burden of supply chain bottlenecks of EUR 200 million. For the second half of the year, the forecast assumes a sales increase of 20 percent.
Revenue expected from return to Asia Pacific
Overall, Adidas assumes that the strong momentum in the western markets and the return to double-digit growth rates in Asia-Pacific can compensate for the decline in sales in China. In the EMEA and Asia-Pacific regions, the Group expects sales growth in the mid-teens percent range, in North America and Latin America in the mid- to high-teens percent range.
In the period from January to March, Adidas earned 437 million euros from operations, a decrease of 38 percent compared to the same period last year. The EBIT margin deteriorated significantly to 8.2 percent from 13.4, partly due to higher investments in marketing and product campaigns. Gross margin deteriorated to 49.9 percent from 51.8 percent, mainly due to increased sourcing and freight costs. After tax, profit from continuing operations also fell by 38 percent to EUR 310 million, basic per share to EUR 1.60 from EUR 2.60. After taxes and third parties, there was a decline of 14 percent to 482 million euros.
Sales amounted to 5.302 billion euros after 5.268 billion, currency-adjusted a minus of 3 percent, nominally a marginal plus of 0.6 percent. According to the information, supply chain bottlenecks have reduced growth by around 400 million euros. These were linked to Covid-19 lockdowns in Vietnam last year, as well as Covid-19 lockdowns in China and Asia Pacific.