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Adidas posts fall in Q3 revenue and profit, reveals cautious outlook

By Prachi Singh

10 Nov 2020

Adidas said that the company recorded a strong sequential revenue improvement in the third quarter as more than 90 percent of the company’s own-retail stores were operational, most of which had been closed for several weeks during the second quarter. The company’s overall direct-to-consumer business grew 13 percent in currency-neutral terms and the wholesale business also improved sharply yet remained below the prior year level, while e-commerce channel grew at a currency-neutral rate of 51 percent. In total, third quarter revenues decreased 3 percent in currency-neutral or 7 percent in euro terms to 5.964 billion euros. The company added that brand Adidas sales declined 2 percent, while Reebok revenues were down 7 percent.

“We saw a strong recovery in our business in Q3. Our focus on healthy inventories, profitable sell-through and disciplined sell-in clearly paid off: inventories declined by more than half a billion euros and our full-price share in e-com increased at a double-digit rate. At the same time, we kept costs under control and delivered a profit improvement of more than 1.1 billion euros compared to Q2,” said Adidas CEO Kasper Rorsted in a statement.

Adidas markets witness sales improvement over Q2

During the third quarter, the company said, all market segments showed a sequential recovery compared to the second quarter. Currency-neutral sales in Russia/CIS rose 11 percent and in Europe, increased 4 percent. In North America, the company recorded a slight decline of 1 percent, while sales in Asia-Pacific declined by 7 percent, with Greater China recording a 5 percent decrease, while the company’s direct-to-consumer sales in Greater China grew at a rate of more than 30 percent, franchise revenues were below the prior year level. The company’s revenues in Latin America declined by 13 percent and Emerging Markets, by 10 percent, where the pandemic continued to disrupt operations and several stores remained closed.

Adidas recorded gross margin level of 50 percent, down 2.1 percentage points in the third quarter, while the company’s operating profit improved by more than 1.1 billion euros to a level of 794 million euros, representing a double-digit operating margin of 13.3 percent. The company recorded net income from continuing operations of 578 million euros, as a result, basic earnings per share (EPS) from continuing operations amounted to 2.80 euros compared to 3.26 euros in the third quarter of 2019.

Coronavirus pandemic weighs on Adidas’ results in first nine months

In the first nine months of 2020, revenues decreased 18 percent on a currency-neutral basis and 20 percent in euro terms to 14.297 billion euros. From a brand perspective, currency-neutral revenues for brand Adidas decreased 18 percent, while Reebok revenues declined 20 percent mainly driven by broad-based store closures due to the global spread of the coronavirus pandemic in the first half of the year.

Gross margin was down 3 percentage points to 50 percent, while operating profit reached 526 million euros, resulting in an operating margin of 3.7 percent compared to 13.6 percent in 2019. During the nine-month period, Adidas reported a net income from continuing operations of 291 million euros compared to 1.737 billion euros in 2019 and basic as well as diluted EPS were 1.47 euros against 8.76 euros in 2019.

Adidas expects similar revenue development in Q4

In Q4, the company said, uncertainties around the further development of the coronavirus pandemic as well as the global macroeconomic environment remain high. Overall, the company’s top line is predicted to develop similarly in Q4 as it did in Q3, implying a low to mid-single-digit currency-neutral revenue decline. This development is against a strong comparison base from the prior year, when the launch of UEFA Euro 2020 merchandise and earlier shipments due to a different timing of Chinese New Year contributed to Q4 growth. Despite the strong comparison base in Greater China, Adidas expects its business in this market to return to growth in the fourth quarter.

As a result of the company’s focus on profitable sell-through and disciplined sell-in, gross margin is expected to be around the prior year level in Q4 and operating profit is anticipated to be between 100 million euros and 200 million euros. This outlook assumes no additional major lockdowns, a store opening rate above 90 percent and no further material slowdown of global store traffic.

Picture:Adidas media centre