Adidas Warns That Worsening Pandemic Will Weigh on Earnings

(Bloomberg) -- Adidas AG became one of the first consumer-goods companies in Europe to warn that renewed lockdowns will weigh on its earnings again and bring a swift end to a recent sales rebound.

The shoemaker’s revenue is no longer on track for growth in the fourth quarter, the German sportswear maker said, predicting a low- to mid-single-digit percentage decline. A number of company stores have already closed in recent weeks amid a resurgence of coronavirus cases while stricter social distancing guidelines are slowing customer traffic in brick-and-mortar shops in Europe.

The prospect of further restrictions could make the guidance out-of-date, as the forecast assumes that 90% of stores remain open. Currently the figure is 92%, Chief Executive Officer Kasper Rorsted said on a call with journalists. In Europe, 40% of stores are already closed. The stock fell as much as 6.7% Tuesday, erasing most of Monday’s surge.

For now, Adidas is looking to control what it can amid the whipsawing swings of the pandemic. It’s focused on cutting costs, promoting e-commerce and shoring up liquidity with a series of bond sales and a 1.5 billion-euro ($1.8 billion) syndicated-loan facility through 2025. That allowed the company to replace a German government-backed package Adidas took on this spring.

Rorsted declined to comment on reports that the company is conducting an internal review on whether to sell the Reebok brand. He said he had no regrets about his Reebok strategy up until now, which has returned the long-suffering brand to profitability and slight growth in recent years.

Sales returned to growth in Europe in the third quarter after a prolonged slump in the German sportswear maker’s home region. North American revenue had gained in July and August, but a dismal September led to a decline for the third quarter, as back-to-school shopping didn’t materialize. Business in Asia slowed down even more amid Covid restrictions in Japan and inventory management in China, Rorsted said.

Third-quarter operating profit reached 794 million euros, beating analyst estimates.

The company managed to reduce inventories by 500 million euros in the quarter and the operating margin returned to a double-digit level as the shoemaker sold more products directly to consumers via e-commerce.

Adidas forecast fourth-quarter operating profit between 100 million and 200 million euros.

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