Adidas issues profit warning amid lockdown issues in China

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Adidas AG issued a profit warning after its sales were impacted by lockdowns and consumer boycotts in China, offsetting strong momentum in its key western markets.

The German sneaker company said while its second-quarter results were “slightly ahead of expectations” with strong growth in western markets, the recovery in Greater China has been slower than expected.

Currency-neutral sales are now expected to rise by a mid- to high-single-digit percentage this fiscal year, compared to a previous guidance that they would rise 11 to 13 percent, the company said in a statement Tuesday. The downgrade also explains a possible slowdown in consumer spending in the other key markets, where shoppers are cutting back on purchases amid rising inflation.

The new guidance requires Adidas to grow second-half sales outside of China by more than 20 percent, which will require “significant market share gains,” Jefferies analysts led by James Grzinic said in a statement. “At this point, investors probably won’t give Adidas the leap of faith.”

Adidas stock has lost more than a third of its value since the beginning of the year. The company’s US depositary receipts fell 7 percent in the update, which came after Europe closed.

Meanwhile, rival brand Puma SE raised its earnings forecast for the year, citing strong growth in sports like running, golf and basketball. Puma now expects sales to grow by a mid-teens percentage this year, up from a previous target of at least 10 percent. According to Tradegate, the shares rose 4.9 percent in premarket trading.

Concerns about Covid-19 have not gone away in China as lockdowns are frequent and mass testing is still ongoing. Retailers have been hit with store closures and even when malls are open, people need a 72-hour PCR test to enter.

Foreign brands are also struggling to keep China as a key growth driver amid consumer boycotts and preferential treatment for domestic companies like Anta Sports Products Ltd. and Li Ning Co. This was a particular challenge for Adidas, which replaced the head of its Chinese operations in March, promoting an executive who had already managed a local brand in China.

Adidas now expects sales in Greater China to fall by double digits for the rest of the year. That decline, and resulting excess inventory to be cleared, means the company’s operating margin is now expected to be around 7% in 2022, down from its earlier guidance of 9.4%.

https://www.independent.ie/business/world/adidas-issues-profit-warning-amid-china-lockdown-woes-41871060.html Adidas issues profit warning amid lockdown issues in China

Fry Electronics Team

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