Adidas Q3 Sales Slip 3 Percent; Sees Uncertainty Ahead

Trumpeting a strong rebound after pandemic-related shutdowns, Adidas reported third-quarter sales slipped 3 percent to 5.96 billion euros, and net income fell 10.8 percent to 578 million euros.

However, the German activewear firm warned of turbulence ahead that will dent Q4 profits. It is forecasting revenues in its final quarter of the year to follow the trend of Q3 – a low- to mid-single-digit currency-neutral revenue decline.  Operating profit is expected to amount to between 100 million 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,” Adidas said.

More than 90 percent of Adidas stores were open in the third quarter, and while traffic remained below year-ago levels, “conversion rates stayed elevated as consumers that visited stores had a clearer buying intent,” Adidas said, also noting that the wholesale business improved sharply.

“Our focus on healthy inventories, profitable sell-through and disciplined sell-in clearly paid off,” Adidas chief executive Kasper Rørsted said, noting that inventories were 10 percent lower than in Q2 and its e-commerce channel advanced at 51 percent in currency-neutral terms.

The company said gross margin slipped 2.1 points to 50 percent due to adverse foreign exchange rates and promotional activities. Operating profits fell 11.6 percent to 794 million euros.

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Sales for the Adidas brand declined 2 percent, while Reebok – still the subject of disposal rumors – dipped 7 percent.

While all geographies demonstrated a recovery, sales in Greater China decreased 5 percent “after initial pent-up demand faded,” Adidas said. Europe, by contrast, returned to growth, posting a 4 percent gain in currency-neutral terms, while Russia/CIS advanced 11 percent.

In North America, sales eased 1 percent. Adidas noted that it logged sale growth in the first two months of the third quarter, suggesting “consumer spending was temporarily supported by fiscal stimulus.”

The pandemic disrupted retail and other operations in Latin America and emerging markets, where revenues dropped 13 percent and 10 percent respectively.

“While at the beginning of the quarter we were on track for growth in Q4, a worsening of the pandemic in many regions of the world is again requiring our patience and support,” Rørsted cautioned. “At the same time, we are even better positioned to benefit from the long-term industry growth drivers accelerated by the pandemic such as health and wellbeing, ath-leisure and digitization.”

Separately on Tuesday, Adidas said it had replaced the syndicated revolving loan facility with KfW, Germany’s state-owned development bank, and secured a new 1.5 billion-euro syndicated loan with several of its partner banks through 2025. The banks including Deutsche Bank and HSBC as joint coordinators.

The company had received the approval of the German government for the KfW loan earlier this year to bridge the situation caused by the pandemic. Adidas noted it has paid back the 500 million euros drawn in July, including interest and fees.

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