Adidas Issues Profit Warning, Blames Persistent Problems in China

October 21, 2022

German sportswear giant Adidas continued to suffer setbacks, cutting its performance forecast for the second time this year.

The company’s forecast for 2022 has dropped from an optimistic growth of 11% to 13% at the beginning of the year to mid-single-digit growth now.

The change was partly due to Adidas achieving currency-neutral revenue of just 4% in the third quarter, with net sales totaling 6.41 billion euros. The company said it still expects double-digit revenue growth in the final quarter of the year due to events such as the Qatar Football World Cup.

Operating profit is now also expected to fall to around 500 million euros, compared with an initial forecast of around 1.3 billion euros.

Adidas blamed a number of factors. Before the COVID-19 pandemic, the world’s second-largest sportswear brand accounted for about a third of its sales in each of its three main regions: Europe, the Americas and China.

But sales in China have plummeted throughout the year due to pandemic-related lockdowns and consumer boycotts of Western brands. Revenue outside of China fell 35% in the first quarter and continued to experience double-digit declines in the second and third quarters as well.

Market analysts say business in China may never return to its previous heights. Earlier this year, Adidas CEO Kasper Rorsted didn’t feel that way. After the first-quarter dip, he insisted that “in the future, you’ll see the Chinese economy grow again” and argued that while the lockdown was an issue, it could also be part of the solution, boosting sales at the end. Apparently, that didn’t happen, and like other brands with significant influence in China, Adidas suffered.

At the same time, Adidas also said that consumer demand in other markets was lower than expected from September, and that it was now dealing with an increase in inventory despite double-digit growth in those regions. This ultimately translates into more discounts, worse profits, and less inflows.

In a statement, Adidas also noted that the complete closure of its Russian operations involved a cost of 300 million euros, which the company now says is unrecoverable.

In fact, this is just the latest bad news for the German brand.

Adidas is also reviewing its relationship with hip-hop star and designer Kanye West, although the fruit of Yeezy‘s collaborations have often become some of Adidas bestsellers, bringing in an estimated €2 billion a year, or about 10 percent of all Adidas sales.

Shares in the company have fallen by a little more than half so far this year, and Rosted, who has led the company since 2016, will step down next year once a replacement is found.

Analysts have observed that shareholders are losing patience with Rorsted as Adidas appears to be lagging its rivals. For example, while Adidas has struggled, its smaller German rival Puma has managed to increase revenue significantly over the past few years.

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