Adidas issues profit warning as China sales plummet while Puma lifts earnings forecast

Adidas stock has lost more than a third of its value since the start of the year.

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

The German sportswear company said although its second-quarter results are “somewhat ahead of expectations” with strong growth in Western markets, the recovery in Greater China was slower than expected.

Adidas shares fell as much as 4% in early trading. The stock has lost more than a third of its value since the start of the year.

Sales will now rise by mid to high single digits on a currency-neutral basis this fiscal year, down from previous guidance they would grow by 11% to 13%, the company said in a statement. The downgrade also accounts for a potential slowdown in consumer spending in its other key markets where shoppers are reining in purchases amid rising inflation.

The new guidance requires Adidas to grow second-half sales by more than 20% outside of China, something that will require “sizable market share gains,” Jefferies analysts, led by James Grzinic, said in a note. “At this juncture investors are unlikely to give Adidas the benefit of the doubt.” 

Meanwhile, rival brand Puma lifted its earnings forecast for the year, citing strong growth in sports such as running, golf and basketball. Puma now expects sales to grow this year by a percentage in the mid-teens, up from a previous target of at least 10%. Nonetheless, shares slipped 1% in early trading.

Concerns over Covid-19 haven’t gone away in China with lockdowns frequent and mass testing still underway. Retailers have been affected by store closures and even when malls are open, people need a 72-hour PCR test to enter.

Foreign brands are also struggling to hang on to China as a major growth driver amid consumer boycotts and preferential treatment for homegrown companies including Anta Sports Products and Li Ning. That’s been a particular challenge for Adidas, which replaced the head of its Chinese operations in March, promoting an executive who had already been managing a local brand in China.

Adidas said it now expects revenue in Greater China to fall at a double-digit rate for the remainder of the year. That decline and the resulting excess inventory that will need to be cleared, means the company’s operating margin is now forecast to be around 7% in 2022, down from previous guidance of 9.4%.

Pre-pandemic, Greater China contributed more than 20% of Nike and Adidas’s global revenue, after roughly doubling in the past decade.

Bloomberg