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Adidas anticipates big impact of coronavirus outbreak on Globally sales

2020/03/27



In 2019, Adidas delivered currency-neutral revenue increase of 6 percent or 8 percent in euro terms to 23.6 billion euros, which the company said increased despite supply chain shortages which the company had experienced following a strong increase in demand for mid-priced apparel. The company’s sales increase was driven by a 7 percent improvement at brand Adidas, reflecting high-single-digit sales growth in sport inspired as well as a mid-single-digit gain in sport performance. The Reebok brand returned to growth in 2019, with currency-neutral revenues up 2 percent versus the prior year driven by double-digit growth in its home market North America. From a channel perspective, the company’s top-line increase was largely driven by 18 percent growth in direct-to-consumer revenues with particularly strong support from e-commerce, where revenues grew 34 percent to 3 billion euros. After the coronavirus outbreak, the company expects revenues in Greater China in the first quarter of 2020 to be between 0.8 billion euros and 1 billion euros below the prior year level. Consequently, operating profit in Greater China is anticipated to decline between 0.4 billion euros and 0.5 billion euros in the first quarter.

 

“In 2019, we proved our resilience and delivered a strong year yet again. We recorded revenue increases across all regions and our direct-to-consumer business grew double-digits driven by e-commerce, one of our strategic growth areas,” said Adidas CEO Kasper Rorsted in a statement, adding, “Following the outbreak of the coronavirus, our business in Greater China has experienced a significant negative impact since Chinese New Year. As the situation keeps evolving, we cannot yet reliably quantify the magnitude of the overall financial impact in 2020.”

 

Adidas returns to revenue growth in Europe

The company added that revenue increased in all market segments. The combined currency-neutral sales of the Adidas and Reebok brands continued to expand at double-digit rates in both Asia-Pacific, where sales rose 10 percent, driven by a 15 percent increase in Greater China, and 13 percent in Emerging Markets.

 

North America currency-neutral revenues were up 8 percent, while currency-neutral revenues in Latin America were up 7 percent and sales in Russia/CIS increased 8 percent, despite tough prior year comparisons related to the 2018 FIFA World Cup. Adidas said, Europe returned to growth with a currency-neutral sales increase of 3 percent as strategic measures showed the planned effects.

 

The company’s gross margin increased 0.2 percentage points to 52 percent and operating margin increased 0.4 percentage points to 11.3 percent.

 

Adidas added that net income from continuing operations increased 12 percent to 1.918 billion euros in 2019, while as a result of the company’s ongoing share buyback program, basic EPS from continuing operations increased by 15 percent to 9.70 euros from 8.46 euros in 2018. Excluding negative impact of IFRS 16, net income from continuing operations grew 15 percent to 1.972 billion euros in 2019 while basic EPS from continuing operations increased 18 percent to 9.97 euros.

 

Fourth quarter net sales increase 10 percent in Q4 2019

Currency-neutral sales increased 10 percent or 12 percent in euro terms to 5.8 billion euros in the fourth quarter of 2019 reflecting an increase of 11 percent at brand Adidas, due to double-digit growth in both sport inspired and sport performance, where the latter was driven by double-digit growth in the training, running and basketball categories. Revenues at the Reebok brand grew 7 percent, driven by double-digit growth in sport and a high-single-digit growth rate in Classics.

 

On a currency-neutral basis, the combined sales of the Adidas and Reebok brands were driven by double-digit increases in the company’s strategic growth markets Greater China, where sales grew 18 percent – leading to growth of 13 percent in Asia-Pacific and North America, 10 percent. In addition, the company also recorded double-digit growth in Latin America of 22 percent, Europe, 14 percent and Emerging Markets, 13 percent. Currency-neutral revenues in Russia/CIS increased 6 percent at a mid-single-digit rate.

 

Fourth quarter gross margin decreased 3.2 percentage points to 49 percent, while the company’s operating profit rose to 245 million euros from 129 million euros in 2018, representing an operating margin increase of 1.7 percentage points to 4.2 percent. Net income from continuing operations increased 94 percent to 181 million euros including a negative impact from the adoption of IFRS 16 of 25 million euros. Basic EPS from continuing operations was up 97 percent to 0.92 euros, including the IFRS 16 impact. Losses from discontinued operations amounted to 15 million euros compared to gains of 15 million euros in the prior year period, as a result, net income attributable to shareholders increased to 167 million euros, resulting in basic EPS from continuing and discontinued operations of 0.85 euros, compared to 0.54 euros in 2018.

 

Adidas expects coronavirus outbreak to impact global revenues

Adidas projects sales to increase at a rate of between 6 percent and 8 percent on a currency-neutral basis in 2020 driven by growth in all market segments. While currency-neutral sales are projected to grow at a low-double-digit rate in North America and Russia/CIS, currency-neutral revenues in Asia-Pacific and Emerging Markets are expected to grow at a high-single-digit rate. Sales in Europe and Latin America are forecast to improve at a mid-single-digit rate in currency-neutral terms.

 

In 2020, the gross margin is forecast to decline slightly compared to the prior year level of 52 percent. Net income from continuing operations is projected to increase to a level between 2.100 billion euros and 2.160 billion euros, reflecting an increase of between 10 percent and 13 percent compared to the prior year level of 1.918 billion euros.

 

The company further said that its outlook for 2020 is subject to change as it does not reflect the impact of the coronavirus outbreak. While the company’s business in Greater China performed strongly in the first three weeks of 2020, the company has been experiencing a material negative impact on its operations due to the outbreak of the coronavirus since then. As a result of a significant number of store closures – both own- and partner-operated – and a pronounced traffic reduction within the remaining store fleet, revenues in Greater China have been around 80 percent below the prior year level between Chinese New Year on January 25 and the end of February. Since then, the company has started to experience a slight improvement in its Greater China business activity, with stores and warehouses gradually opening and consumer traffic slowly picking up. Based on the latest information available, the company expects revenues in Greater China in the first quarter of 2020 to be between 0.8 billion euros and 1 billion euros below the prior year level. Consequently, operating profit in Greater China is anticipated to decline between 0.4 billion euros and 0.5 billion euros in the first quarter. In addition, the company has started to observe traffic declines with a corresponding negative business impact in Japan and South Korea.

 

For more news, please pay attention to International Fashion Fair.

 

Sourcefashionunited

Picture:Adidas media centre


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