Red Sea Shipping Delays Persist at Adidas, Gap Inc., Zara and John Lewis

Glenn Taylor
·4 min read

As more drama develops in the Red Sea, apparel and footwear sellers are still feeling the impacts from shipping delays. But for the most part, brands aren’t reporting severe financial impacts during the crisis, despite the added time in delivery.

On Thursday, the Financial Times reported that the U.S. and Iran held secret talks in January over the ongoing Houthi attacks in the waterway. The report said the indirect negotiations, which were brokered by and took place in Oman, were initiated by the U.S. in an effort to convince the nation to use its influence over the Yemen-based militant group to end the roughly four-month assault in the region.

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The report came out the same day Russian state media relayed a Houthi claim that they successfully tested a hypersonic missile.

The events have had a consistent impact on Adidas, which is one of many European brands with a direct impact from the re-routing of ships away from the Suez Canal. Upon unveiling its official fourth quarter and full year results, the company said it is still experiencing shipment delays of two-to-three weeks due to the Red Sea skirmish.

“We have a little bit of headwind in freight in the first half because of the Red Sea situation, and as you know, if the freight companies have a chance to do something they increase prices,” said CEO Bjørn Gulden in an earnings call Wednesday. “That should normalize and then the rest of everything that has to do with margin is going in the right direction.”

Chief financial officer Harm Ohlmeyer said Wednesday that there could be an impact on working capital if the disruptions continue.

In February, when the German athleticwear and footwear brand held its preliminary earnings results, Gulden said that the situation is not expected to have a huge impact on margins, and that “it’s not a huge problem.”

“We all have delays,” Gulden said at the time. “It’s not that we are worse than anybody else, but the irony is that we actually have products right now that the sell-through is so good with certain retailers that we can’t deliver and of course, that is the biggest impact currently from the Red Sea.”

Gap Inc., which was called out by Moody’s as a possible retailer that would be impacted by the Red Sea-driven delays, gave a brief update in its own earnings call. The delays haven’t appeared to impact costs heavily, with gross margins at the Old Navy parent increasing 5.3 percentage points to 38.9 percent.

“We have embedded multiple scenarios that contemplate modest headwinds in the first half of the year related to late deliveries as a result of geopolitical issues in the Red Sea,” said Katrina O’Connell, executive vice president and chief financial officer at Gap Inc., on a March 7 earnings call. “We currently expect that impact will moderate in the second half of 2024, but we will monitor the situation closely as we move through the year.”

Inditex, the parent company of Zara and Bershka, among others, said that it is enduring one-week product delays, noting that most container vessels carrying Inditex goods are making their way around Africa instead of passing through the Suez Canal.

“For the time being, there seems to be no risk of disruption to transport chains and no lack of availability of vessels and/or containers,” Inditex said in its annual report. “Shipping costs may have risen as a result of higher fuel consumption and the extraordinary cost overruns. Our operations have not been significantly impacted by this situation so far.”

Like Inditex, another European-based retailer is seeing delays, while also shrugging off wider effects. U.K.-based department store John Lewis has seen some delays to stock arrivals and a rise in freight costs due to the Red Sea disruption, according to chief financial officer Bérangère Michel. But she said the disruption did not materially impact its year-to-Jan. 27 results.

Back in the U.S., warehouse club giant Costco shares a similar story with many of its retail brethren.

“There are some delays, generally just a couple or three weeks, but mostly now planned for,” said Richard Galanti, executive vice president, chief financial officer at Costco. “First, there was an issue a while back about with the Panama Canal challenges, then, of course, the Red Sea challenges. A lot of that has to do with changing the way ships are being routed. No meaningful pricing issues because a lot of in-place contracts.”

Referring to the situations at both the Suez and Panama Canals in a Thursday earnings call, Navdeep Gupta, chief financial officer of Dick’s Sporting Goods, said his company is not expecting any kind of tailwind or headwind from the twin crises.

“Overall, we feel great about the inventory position and we’ll continue to monitor how these overall situations evolve,” Gupta said.