Adidas cuts profitability target as sales in China slump

Adidas has been starting to increase prices as higher costs for transport, shoes and garments erodes profitability. PHOTO: REUTERS

GENEVA (BLOOMBERG) - Adidas has cut its profitability targets for this year and forecast a plunge in revenue from China due to Covid-19 lockdowns.

The company said on Friday (May 6) that supply bottlenecks in Vietnam have reduced the availability of products, eroding sales. A fifth of the shoemaker's business is underperforming amid a whirlwind of geopolitical challenges.

First-quarter revenue to Greater China fell 35 per cent, and the company has been starting to increase prices as higher costs for transport, shoes and garments erode profitability.

Foreign brands are struggling to hang on to China as a major growth driver after almost a year of consumer boycotts and preferential treatment for home-grown companies.

Adidas replaced the head of its Chinese operations last month, promoting an executive who has been managing a local brand there. Adidas lowered its gross margin target this year to 50.7 per cent. Previously, it aimed for 51.5 per cent to 52 per cent. The company also cut its operating margin forecast.

Sales growth and profit will be at the lower end of its forecasts, the company also said. Adidas has been predicting revenue to increase 11 per cent to 13 per cent this year on a currency-neutral basis and an adjusted net income of €1.8 billion to €1.9 billion (S$2.6 billion to S$2.8 billion).

Revenue fell 3 per cent on a currency-neutral basis in the first quarter. Adidas said it missed out on €400 million of sales because lockdowns in Vietnam last year made it impossible for factories to produce enough.

Adidas has said the war in Ukraine is putting as much as €250 million of revenue at risk. That is half of its business from Russia and the Commonwealth of Independent States region, and represents about one percentage point of growth in total sales.

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