By Joshua Kirby
On Friday, Adidas AG presented a much less optimistic view of its prospects in Greater China this year, recently forecasting lower sales in the key market as pandemic-related lockdowns strangle demand.
Slumping sales in China mean the German sportswear giant no longer expects margin expansion this year.
Adidas’ sales in Greater China fell 35% at constant currency in the first quarter, offsetting growth of 13% in North America and 9% in EMEA to drive an overall sales decline of 3% net of 5.3 billion euros ($5.59 billion).
The company noted the difficult market environment in China, exacerbated by further pandemic-related lockdowns that led to store closures and a sharp reduction in customer traffic. Since late March, China has imposed strict lockdowns in a number of cities in a bid to tackle rising Covid-19 cases.
The pandemic situation means Adidas now expects Greater China sales to decline significantly for the full year, he said. In 2021 results earlier this year, the company had forecast a return to sales growth in China in 2022.
Adidas nonetheless backed its full-year organic growth target of 11% to 13%, but said it expects to hit the lower end of the range. The company expects to return to positive growth in the second quarter, at around 20%, as supply pressures ease and demand recovers in Asia-Pacific, adding to the momentum in Western markets, did he declare.
However, due to a less favorable geographical mix, the company no longer expects its margins to increase over the year. Adidas had previously targeted a gross margin of 51.5% to 52% and an operating margin of 10.5% to 11% for the year, up from the 50.7% and 9.4% it had reserved in 2021, respectively.
Despite a less optimistic margin outlook, the company said it still expects to meet its net income target from continuing operations for the year, although, as with the sales target, at the lower end of the year. a guided range of 1.8 billion euros to 1 euro. 0.9 billion.
In addition to the pandemic situation, Adidas and its peers, including Nike Inc. and Germany’s Puma AG, have seen their performance in China dampened in successive quarters by a consumer boycott triggered at the end of March last year. The boycott is linked to Western brands’ stance on cotton produced in China’s Xinjiang region, where activists and some governments allege forced labor is used.
Puma Chief Executive Bjorn Gulden said during the company’s recent first quarter results – when it recorded its own Greater China sales plunge of 37% – that the consumer boycott remained the main headwind in the country. It remains difficult to assess when this problem will be resolved, he added.
Write to Joshua Kirby at jos[email protected]; @joshualeokirby