Adidas lowers full year outlook on slow China recovery

Adidas has adjusted its outlook for the financial year 2022 and now expects currency-neutral revenues to grow at a mid- to high-single-digit rate compared to previous outlook at the lower end of the 11 percent to 13 percent range.

The company said in a release that while second quarter results were somewhat ahead of expectations reflecting continued strong momentum in western markets and a return to growth in Asia-Pacific, the company has been experiencing a slower-than-expected recovery in its business in Greater China since the start of the third quarter.

Previously, the company had assumed that in absence of any major lockdowns as of Q3, currency-neutral revenues in the region would be flat during the second half of the year versus the prior year level. However, given the continued widespread Covid-19-related restrictions, Adidas now expects revenues in Greater China to decline at a double-digit rate during the remainder of the year.

Because of the less favourable market mix due to lower-than-expected revenues in Greater China as well as the impact from initiatives to clear excess inventories in this market until the end of the year, the company’s gross margin is now expected to be around 49 percent in 2022 compared to previous expectation of around 50.7 percent.

The company’s operating margin is now forecasted to be around 7 percent against previous outlook of around 9.4 percent and net income is expected to reach a level of around 1.3 billion euros compared to previous guidance of at the lower end of the 1.8 billion euros to 1.9 billion euros range.

The company said, adjusted guidance also accounts for a potential slowdown of consumer spending in these markets during the second half of the year as a result of the more challenging macroeconomic conditions.

Despite these headwinds, Adidas continues to expect double-digit revenue growth during the second half of the year for the total company.

Based on preliminary numbers, Adidas’ currency-neutral revenues grew 4 percent during the second quarter driven by strong double-digit growth in North America and Latin America, high-single-digit growth in EMEA (also double-digit growth excluding negative Russia/CIS impact) as well as a return to growth in Asia-Pacific.

In euro terms, sales increased 10 percent to 5.596 billion euros.

The company’s gross margin declined 1.5 percentage points to a level of 50.3 percent and operating margin reached 7 percent during the second quarter. Net income was 360 million euros in Q2.