Adidas Issues Profit Warning Amid China Lockdown Woes

Adidas AG 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 sneaker 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.

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 percent to 13 percent, the company said in a statement Tuesday.

Adidas shares have lost more than third of their value since the start of the year. The American depositary receipts fell 7 percent on the update, which came after the close of trading in Europe.

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 onto China as a major growth driver amid consumer boycotts and preferential treatment for homegrown companies including Anta Sports Products Ltd. and Li Ning Co.

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 percent in 2022, down from previous guidance of 9.4 percent.

The company said the downgrade also accounts for a potential slowdown in consumer spending in its other key markets where consumers are reining in purchases amid rising inflation.

By Dierdre Hipwell

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