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Adidas Q2 sales increase but operating profit declines

By Prachi Singh

4 Aug 2022

Business

Image: Adidas x Marimekko via Marimekko

In the second quarter, currency-neutral revenues increased 4 percent as Adidas continued to see strong momentum in western markets. In euro terms, revenues grew 10 percent to 5.596 billion euros.

In the first half of 2022, currency-neutral revenues were flat versus the prior year period. In euro terms, revenues grew 5 percent to 10.897 billion euros.

The company said that this growth was achieved despite continued challenges on both supply and demand.

“Our Western markets continued to show strong momentum in the second quarter amid heightened macroeconomic uncertainty. With Asia-Pacific returning to growth, markets representing more than 85 percent of our business grew at a double-digit rate,” said Adidas CEO Kasper Rorsted in a release.

Western markets drive sales growth at Adidas

From a category perspective, revenue development was strongest in the company’s growth categories football, running and outdoor, which all grew at strong double-digit rates.

The company added that revenue growth in the second quarter was driven by western markets despite last year’s lockdowns in Vietnam still reducing sales, particularly in EMEA and North America, by 200 million in total.

Also, the top-line development in EMEA was also impacted by the loss of revenue in Russia/CIS of more than 100 million euros. Currency-neutral sales grew 7 percent in the region.

Revenues in North America increased 21 percent during the quarter driven by growth of more than 20 percent in both DTC and wholesale. Revenues in Latin America increased 37 percent, while Asia-Pacific returned to growth. Currency-neutral revenues increased 3 percent in this market despite still being impacted by limited tourism activity in the region.

However, the company continued to face a challenging market environment in Greater China, mainly related to the continued broad-based covid-19-related restrictions. As a result, currency-neutral revenues in the market declined 35 percent during the three-months period. Excluding Greater China, currency-neutral revenues in the company’s other markets combined grew 14 percent in Q2.

Second quarter operating results at Adidas

The company further said that operating profit declined to 392 million euros reflecting operating margin of 7 percent. The company’s gross margin declined 1.5 percentage points to 50.3 percent.

The company’s net income from continuing operations slightly declined to 360 million euros compared to 387 million euros in 2021 and basic EPS from continuing operations reached 1.88 euros compared to 1.93 euros during the quarter.

The company’s gross margin declined 1.7 percentage points to 50.1 percent during the first half of the year. Adidas generated an operating profit of 828 million euros compared to 1.248 billion euros in 2021 resulting in an operating margin of 7.6 percent.

Net income from continuing operations reached 671 million euros, reflecting a decline of 219 million euros and basic earnings per share from continuing operations declined to 3.47 euros.

Adidas adjusts FY22 outlook due to slower recovery in China

On July 26, Adidas adjusted its guidance for FY 2022 due to the slower-than-expected recovery in Greater China since the start of the third quarter resulting from continued widespread covid-19-related restrictions.

Adidas now expects currency-neutral revenues for the total company to grow at a mid to high-single-digit rate in 2022 compared to previous outlook of at the lower end of the 11 percent to 13 percent range, reflecting a double-digit decline in Greater China.

The company said that this adjusted guidance also accounts for a potential slowdown of consumer spending in markets during the second half of the year as a result of the more challenging macroeconomic conditions. Therefore, growth in EMEA is now expected to be in the low teens compared to mid-teens growth previously, while revenues in Asia-Pacific are projected to grow at a high-single-digit rate.

In North America, currency-neutral revenues are now expected to increase in the high teens. Sales in Latin America are projected to grow between 30 percent and 40 percent.

Due to the less favourable market mix and the impacts from initiatives to clear excess inventories in Greater China until the end of the year, gross margin is now expected to reach a level of around 49 percent against earlier expectation of around 50.7 percent in 2022.

The company’s operating margin is now forecast to be around 7 percent compared to around 9.4 percent previously and net income is expected to reach a level of around 1.3 billion euros compared to previous expectation of at the lower end of the 1.8 billion euros to 1.9 billion euros range.

ADIDAS