China and Russia Headwinds Weigh on Adidas’ Q2 Earnings
Adidas is still seeing headwinds due to lockdowns in China and the closure of its business in Russia.
The German brand on Thursday reported that currency-adjusted sales in Q2 were up by 4%, though net income from continuing operations declined to € 360 million (or $367 million). Operating profit fell to € 392 million ($398 million) from € 543 million ($553 million) in 2021.
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Adidas shares were up more than 2% on Thursday morning.
Adidas CEO Kasper Rorsted said in a statement that the macro-economic environment in China has hindered the company’s recovery in that market. Just last week, Adidas cut its outlook for 2022, citing a slower recovery in China due to persisting Covid-19 restrictions. The company said it expects revenues in Greater China to decline at a double-digit rate through 2022.
“The recovery in this market is — due to continued covid-19-related restrictions — slower than expected,” Rorsted said. In Greater China, sales dropped 35% in Q2.
Moving forward in China, Adidas is aiming to create ties with local Chinese consumer via local storytelling, partnerships with Chinese athlete and a collection of “localized lifestyle footwear,” Rorsted said.
Outside of China, Adidas saw headwinds from supply chain issues as a result of last year’ lockdowns in Vietnam, which impacted top-line growth by about € 200 million ($203 million) in Q2. The company’s decision to suspend all retail and e-commerce sales in Russia represented a more than € 100 million ($102 million) hit in Q2.
Adidas said it expects discounting to increase in the second half of the year, especially in Greater China as the company looks to clear excess inventory.
Rorsted also noted a “potential slowdown in consumer spending” across other markets, which could create persist through 2022.
“So far, we have not experienced a meaningful slowdown in the sell-through of our products,” Rorsted said. “We have also not experienced significant cancellations of wholesale orders in any other markets in Greater China, but we clearly need to be prepared that this might change as the year progresses.”
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