By Sam Boughedda
Adidas AG (ETR:ADSGN) (OTC:ADDYY) announced Tuesday that it is cutting its outlook for the financial year 2022 due to a slower recovery in China and a "potential slowdown in other markets."
The sportswear giant said while second-quarter results were somewhat ahead of expectations reflecting continued strong momentum in Western markets and a return to growth in Asia-Pacific, it has experienced a slower-than-expected recovery in its business in Greater China since the start of the third quarter due to Covid-related lockdowns in the country.
They had previously assumed third quarter, currency-neutral revenues in the region would be flat during the second half of the year compared to last year. However, Adidas now expects revenues in Greater China to decline at a double-digit rate during the remainder of the year.
As a result, Adidas now expects revenues to grow at a mid- to high-single-digit rate in 2022 compared to the lower end of the 11% – 13% range, as previously stated.
As well as lower-than-expected revenues, Adidas has been impacted by excess inventories. As a result, its gross margin is now expected to be around 49% in 2022 compared to the previous expectation of 50.7%. Operating margin is now predicted to be about 7% in 2022 (previously around 9.4%), and net income from continuing operations is expected to reach around €1.3 billion (previously: at the lower end of the € 1.8 billion – € 1.9 billion range).
While its issues in China persist, Adidas stated it hadn't yet experienced a significant slowdown in the sell-through of its products or significant cancellations of wholesale orders in any other market.
"Despite these headwinds, adidas continues to expect double-digit revenue growth during the second half of the year for the total company. In addition to easier prior year comparables, the acceleration will be driven by adidas' strong product pipeline, the restocking opportunity with its wholesale customers given unconstrained supply as well as the support from major sporting events," the company said in a statement.