Adidas Issues Profit Warning, Blames Ongoing China Problems

German sportswear giant Adidas continues to suffer from setbacks and has lowered its guidance for the second time this year.

The company’s prognosis for 2022 has fallen from an optimistic growth of 11 to 13 percent at the beginning of this year, to a mid-single-digit rate now.

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That change is partially due to the fact that Adidas achieved currency neutral revenues of only 4 percent in the third quarter, with net sales totaling 6.41 billion euros. The company still expected double-digit revenue growth in the last quarter of the year though, it said, due to events like the soccer world cup in Qatar.

Operating profit is now also expected to be lower, coming in at around 500 million euros when the original forecast was for about 1.3 billion euros.

Adidas put the blame on a number of factors. Up until the COVID-19 pandemic, the second-largest sportswear brand in the world had made roughly a third of its sales in each of three main territories: Europe, the Americas and China.

But sales in China have been nosediving all year due to pandemic-related lockdowns and a consumer boycott of Western brands. During the first quarter, revenues out of China dropped 35 percent and that double-digit decrease has continued throughout the second and third quarters too.

Market analysts suggested that business in China might never return to its previous heights. Earlier this year, Adidas chief executive officer Kasper Rorsted had not felt the same way. After the first-quarter drop, he had insisted that, “in the future, you will see a growth economy in China [again],” and argued that while the lockdown was a problem, it could also be part of the solution, boosting sales when it ended. Obviously that has not happened and like other brands with significant exposure to China, Adidas has suffered.

At the same time, Adidas also said consumer demand in its other markets had been lower than expected from September onward and that, despite double-digit growth in those regions, it was now dealing with a build-up of inventory. This would eventually translate to more discounting, worse margins and less money coming in.

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In a statement, Adidas also noted costs of 300 million euros involved in the complete wind down of its Russia business, which it now says is irrecoverable.

In fact, this is only the latest bit of bad news for the German brand.

Adidas is also reviewing its relationship with hip-hop star and designer Kanye West, though the fruits of the Yeezy collaboration have regularly been some of Adidas’ bestsellers and bring in an estimated 2 billion euros a year, about 10 percent of all Adidas’ sales.

The company’s share price has fallen by just over half during this year so far and Rorsted, who has led the company since 2016, will be stepping down next year, as soon as a replacement is found.

Analysts observed that shareholders were losing patience with Rorsted as Adidas seemed to be falling behind its rivals. For instance, while Adidas has struggled, it’s smaller German competitor Puma has managed to significantly increase revenues over the past few years.