Coronavirus to Cut Adidas Profit by Half a Billion Dollars
Adidas AG forecast the coronavirus will cut first-quarter profit in China by about half a billion dollars, while German rival Puma SE said it no longer expects any recovery in the short term.
The German sportswear maker forecast first-quarter revenue will drop 10%, stripping 400 million euros to 500 million euros ($450 million to $570 million) from profit. Puma said Wednesday that it can’t quantify the potential impact of the disease outbreak, and so last month’s target for a 10% increase in revenue this year no longer applies.
Sportswear demand will take longer to recover than other consumer goods, Adidas Chief Executive Officer Kasper Rorsted said in an interview with Bloomberg TV.
“We are on the end of the food chain,” he said. “If you’ve been sitting for two weeks in an apartment, your first thought is not to buy a pair of sneakers, it is to restore your fridge.”
Shares of Adidas fell as much as 8.8% in Frankfurt, while Puma dropped 6%.
Adidas declined to estimate the full-year impact of the spread of Covid-19, which will be worse because business is already also slowing in Japan and South Korea even as China starts to recover. Chinese sales will drop by as much as 1 billion euros in the first quarter, while the company expects a 100 million-euro drop in Japan and South Korea.
“We’re concerned about the dimensions of 2020 and potentially the year following, but we also know from the past that viruses will pass,” Rorsted said. “My company is not going to get any better if I run around being in panic.”
The company would lose 50 million to 70 million euros if the Olympics and the Euro Cup games are postponed. The apparel maker gets almost a quarter of its revenue from China and has about a fifth of its production there. Rorsted said he isn’t
overly concerned about supply chain shortages.
Excluding the epidemic, Adidas projected currency-neutral sales would grow 6% to 8% this year. That’s slightly more aggressive than last year’s forecast around this time, which was 5% to 8%.
Adidas said sales slumped 80% in China last month, but stores and warehouses have gradually reopened and consumer traffic is slowly picking up. To try to prevent a glut of unsold products on the market, Adidas canceled all wholesale shipments to retailers in February and it may take back a significant amount of stock from its partners, which Adidas will put up for sale in its own stores later this year.
Deals have been popping up in Asia for Adidas products, including buy one-get one free offers in Hong Kong.
©2020 Bloomberg L.P.