Adidas shares slip on profits

By Emma Thomasson

Adidas said supply shortages for North America will be fixed by the end of the year and that the European market should return to growth, after the German sportswear company reported weaker-than-expected second-quarter sales and profits.

Chief executive Kasper Rorsted said he was more worried about a currency war between the US and China than about tariffs on Chinese-made shoes, with Washington having branded Beijing a currency manipulator earlier this week.

“There is no winner in a currency war. Eventually, everybody will lose, as it will lead to a slowdown in the world economy,” Mr Rorsted told journalists, noting that a fall in currencies of its two top markets would be tough, because the firm reports in euro.

Adidas shares, which fell almost 2.5% at one stage in the session, have nonetheless climbed 43% in the past year. The shares had rallied in recent weeks, on hopes Adidas might lift its outlook, after German rival Puma raised its sales and profit forecasts, following a strong second quarter.

“Given the recent re-rating in the shares, since April, and narrowing valuation gap versus peers, the lack of a sales or earnings beat is unusual, and brand momentum remains concerning,” Credit Suisse analysts wrote of Adidas. Second-quarter sales rose a currency-adjusted 4%, to €5.51bn, shy of average analyst forecasts, as the company saw a strong decline in the soccer category, a year on from the World Cup.

Operating profit rose 9%, to €643m, also lagging average analyst forecasts. Adidas warned, in March, that supply chain issues would hit sales growth in the first half, citing problems meeting North American demand for mid-market clothing.

The shortages should be over by the end of the year, and have no impact in 2020, Mr Rorsted said, noting that Adidas has built up capacity and accelerated the transfer of goods by air freight, but made up for the higher costs elsewhere.

He said the supply problems were unrelated to US-China trade tensions, with few Adidas products for the US market still being produced in China. Adidas makes about 25% of its sales in China, which accounts for 20% of manufacturing.

Adidas quarterly sales were flat in Europe, recovering from a 3% fall in the first quarter, after the firm reduced its reliance on its Originals fashion line and boosted sales of sports performance gear with new product launches.

- Reuters