The German sporting goods supplier Adidas AG had already admitted unexpectedly weak business in October. The full results for the third quarter of 2022, which the company presented on Wednesday, confirmed the problems resulting from adverse conditions in key markets.
In addition, the immediate discontinuation of the Yeezy line, which was decided at the end of October after anti-Semitic statements by cooperation partner Kanye “Ye” West, had the first negative effects on the current figures. In view of the foreseeable consequences of this decision, management again lowered its annual forecasts.
High growth in the other markets can more than compensate for significant sales losses in China
In the months of July to September, adidas group sales amounted to 6.41 billion euros. It thus exceeded the level of the same quarter of the previous year by 11.4 percent. Adjusted for exchange rate changes, revenues increased by four percent. Losses in business in China were more than offset by growth in the rest of the world.
Sales in the EMEA region, which includes Europe, the Middle East and Africa, rose by 9.6 percent (currency-adjusted +7.4 percent) to EUR 2.46 billion, in North America by 25.4 percent (currency-adjusted +8 .2 percent) to 1.75 billion euros and in Latin America by 56.4 percent to 633 million euros. In China, sales slipped 18.9 percent (-26.6 percent at constant currency) to 937 million euros, while in the rest of Asia-Pacific markets they fell by 15.1 percent (-14.6 percent at constant currency) to 579 million euros million euros added.
Despite the overall double-digit growth, Chief Financial Officer Harm Ohlmeyer warned of the deteriorating market conditions: “In early September, there was a shift in the market environment as consumer demand in the western markets weakened and the trend in terms of customer traffic in China continued to deteriorate,” explained him in a message. “This resulted in a significant increase in inventories throughout the industry, which will lead to increased sales promotions over the course of the year, which will increasingly affect our profits.” will be held in Qatar from November 20th.
High costs and negative special effects cause profits to slip
The result was impacted by various factors. In view of significantly higher product and freight costs, “widespread price increases” and favorable currency effects were not enough to stabilize the gross margin, the group said. In addition, “higher discounts and an unfavorable market mix” weighed on the margin.
Because of increased operating costs and negative one-off charges, the operating result fell by 16.0 percent to 564 million euros compared to the same period last year. Profit from continued operations shrank from 479 to 66 million euros and was thus well below the recently communicated expectations.
The first effects of the separation from Kanye West were decisive here: the main reason for the decline in earnings was “the negative tax effects in the third quarter in connection with the company’s decision to discontinue the Adidas-Yeezy partnership,” the group explained. However, this negative tax effect will be “fully offset by a positive tax effect of a similar magnitude in the fourth quarter of the year”.
The bottom line was a net profit attributable to the shareholders of 347 million euros. Compared to the third quarter of the previous year, the surplus fell by 63.8 percent.
Adidas cuts forecasts for 2022 and promises “strong earnings growth” in the coming year
After lowering its full-year targets in October due to weaker conditions, the company revised its forecast downward again due to the discontinuation of Yeezy and the resulting financial consequences. The Management Board now only expects currency-adjusted sales growth “in the low single-digit percentage range” for 2022. The target for profit from continued operations was lowered from 500 to around 250 million euros.
For the coming year, however, the group held out the prospect of “strong profit growth”. One-off expenses of 500 million euros, which will burden earnings in the current year, would then no longer apply, and the company explained that positive effects from the cost-cutting program that has now been launched can also be expected.
Industry experts also have high hopes for the designated CEO: On Tuesday, the company officially announced that the previous Puma boss Bjørn Gulden would switch to the helm of Adidas on January 1st.