Tweet
The German sportswear giant reported net profit of €310 million ($327 million) in the first three months of 2022, down 38% on the same period last year.
The company said the decline was caused by a “challenging market environment” in China, where sales fell 35%, as well as supply chain disruptions.
With no end in sight to Chinese President Xi Jinping’s zero-Covid strategy, the outlook for Adidas’ business in China — which accounted for about 20% of the company’s sales last year — is grim.
In its latest third-quarter earnings report, published last Thursday, Adidas lowered its forecast for this year’s operating margin from 7% to 4% because of an overhang of inventory that will have to be sold at a discount. Adidas warned unsold goods were piling up in warehouses due to deteriorating store traffic trends in Greater China and a slowdown in demand in Western markets since September.
The news sent Adidas shares slumping as much as 9.1%—erasing all the gains made during CEO Kasper Rørsted’s six-year tenure and leaving it with a market value about a sixth of that of U.S. rival Nike.
Although Adidas does not report specific sales numbers from the Yeezy arrangement, which began in 2013 and expires in 2026, Morningstar analyst David Swartz estimates Yeezy sales for Adidas to be around $2 billion annually—potentially making up 10% of Adidas’s total sales.
“Ten years ago, Adidas was struggling in the U.S., the largest sportswear market. Thanks, in part, to Yeezy, its U.S. business has rebounded,” Swartz said. “It has helped bring its North America business back to relevance, and it has made Adidas relevant in the collectors’ market and probably allows it to reach a demo that it has missed.”
The company said the decline was caused by a “challenging market environment” in China, where sales fell 35%, as well as supply chain disruptions.
With no end in sight to Chinese President Xi Jinping’s zero-Covid strategy, the outlook for Adidas’ business in China — which accounted for about 20% of the company’s sales last year — is grim.
In its latest third-quarter earnings report, published last Thursday, Adidas lowered its forecast for this year’s operating margin from 7% to 4% because of an overhang of inventory that will have to be sold at a discount. Adidas warned unsold goods were piling up in warehouses due to deteriorating store traffic trends in Greater China and a slowdown in demand in Western markets since September.
The news sent Adidas shares slumping as much as 9.1%—erasing all the gains made during CEO Kasper Rørsted’s six-year tenure and leaving it with a market value about a sixth of that of U.S. rival Nike.
Although Adidas does not report specific sales numbers from the Yeezy arrangement, which began in 2013 and expires in 2026, Morningstar analyst David Swartz estimates Yeezy sales for Adidas to be around $2 billion annually—potentially making up 10% of Adidas’s total sales.
“Ten years ago, Adidas was struggling in the U.S., the largest sportswear market. Thanks, in part, to Yeezy, its U.S. business has rebounded,” Swartz said. “It has helped bring its North America business back to relevance, and it has made Adidas relevant in the collectors’ market and probably allows it to reach a demo that it has missed.”
