Adidas shares fall 11% as market weakness kicks

Adidas said the gloomier outlook will likely lead to an overhang of stocks that will have to be discounted.

The next chief executive at Adidas is set to inherit an even tougher job after the company warned that unsold goods are piling up as consumer demand weakens across China and western markets. 

That sent the German sport clothing maker’s shares slumping by 11%.

Problems are accumulating under outgoing boss Kasper Rorsted, including a publicity crisis over an alliance with rapper and designer Kanye West. Whoever replaces Mr Rorsted as CEO next year will need to come up with buzzy products as the future of the bestselling Yeezy line is in doubt. 

Adidas shares have now lost all the gains they made during Mr Rorsted’s six-year tenure, leaving the company with a market value about a sixth of that of US rival Nike. 

Adidas said the gloomier outlook — its second profit warning in three months — reflects a deterioration in store traffic trends in China and a slowdown in demand in western markets since September. That’s likely to lead to an overhang of stocks that will have to be discounted.

Adidas had already flagged weakness in China in its July warning. The country was once the brand’s biggest growth engine, but consumer boycotts and Covid restrictions have dented sales. Surging inflation across western markets has crimped consumer spending power. 

Full-year revenue will grow at a mid-single-digit rather than mid- to high-single-digit rate, Adidas said. The German company lowered its forecast for this year’s operating margin to 4% from 7% in the surprise update. 

Adidas is probably only part-way through the process of lowering earnings expectations, Piral Dadhania of RBC said in a reserach note. Discount sales to clear inventory could force Mr Rorsted’s successor to abandon Adidas’s financial targets through 2025, he wrote. 

Bloomberg