Adidas falters behind rivals as China woes continue

Adidas is still lagging behind its sportswear rivals as its problems in China continue.

Operating profit for the German retailer tumbled by 28% in its second quarter to £326 million. Business suspension in Russia, supply chain woes and lockdowns in China and Vietnam were cited as the reasons.

Currency-neutral sales rose 4% in the quarter but net income from continuing operations fell to £301 million from €387 million year-on-year.

Adidas slashed its 2022 outlook in July due to slower-than-expected recovery in China. It said it expected full-year net income from continuing operations to reach about £1.09 billion.

Revenue growth in Q2 was mainly driven by Western markets despite while last year’s lockdowns in Vietnam hampered sales.

“Our Western markets continued to show strong momentum in the second quarter amid heightened macroeconomic uncertainty,” Adidas CEO Kasper Rorsted said.

“With Asia-Pacific returning to growth, markets combined representing more than 85% of our business grew at a double-digit rate.

“With sports back at centre stage this summer, revenues in our strategic growth categories Football, Running and Outdoor all increased by double digits. However, the macroeconomic environment, particularly in China, remains challenging.

The recovery in this market is – due to continued COVID-19-related restrictions – slower than expected. And we have to take into account a potential slowdown in consumer spending in all other markets for the remainder of the year.”

GlobalData apparel analyst Darcey Jupp added: “Greater China remains Adidas’ weakness, with a currency-neutral revenue decline of 34.8% in H1 FY2022. Like many other brands, lockdowns in the country hit sales considerably, and while no cities are under lockdown at present, its poor H1 performance and the threat of future closures has forced Adidas to reduce its outlook, with the brand now expecting a double-digit decline in the country in its FY2022.

“This poor performance is certainly a blow to Adidas, announcing just last year that Greater China was a key region for expansion in its ‘Own the Game’ strategy.

“When this launched, Adidas expected to see strong growth in Greater China, but the impact of its zero-COVID policy alongside boycotts and a growing distaste for Western products have proved this to be a much greater challenge than expected.

“While the sportswear specialist is not alone in its struggles in China, its muted performance in other regions only adds fuel to the fire.”

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