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adidas talks about strong recovery despite sales plunge

Nov 19, 2020 Germany
adidas talks about strong recovery despite sales plunge
The Germany-based sportswear giant said the third quarter was marked by a strong recovery of the business. In the period under analysis, revenue decreased by 3% in currency-neutral terms. In euro terms, revenue decreased by 7%
“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“, commented CEO Kasper Rorsted.

Third Quarter

More than 90% of the company’s own-retail stores were operational in the third quarter, most of which had been closed for several weeks during the second quarter. Traffic in the stores continued to improve yet remained significantly below prior year levels. At the same time, conversion rates stayed elevated as consumers that visited stores had a "clearer buying intent".

Exceptional growth in the company’s e-commerce channel continued at a currency-neutral rate of 51%, which was accompanied by a strong increase in full-price sales. The company’s overall direct-to-consumer business grew by 13% in currency-neutral terms and accounted for 35% of total sales in the quarter. The wholesale business also improved sharply yet remained below the prior year level.

In total, third quarter revenue decreased by 3% in currency-neutral terms. Brand adidas sales declined by 2%, while Reebok revenue was down by 7%. In euro terms, revenue decreased by 7% to 5.964 billion euros (which compares to 6.410 billion euros in 2019).

During the third quarter, all market segments showed a sequential recovery compared to the second quarter. Currency-neutral sales in Russia/CIS (+11%) as well as Europe (+4%) returned to growth. In North America, the company recorded a slight decline of -1% for the full quarter despite positive sales growth over the first two months of the quarter as consumer spending was temporarily supported by fiscal stimulus. Asia-Pacific sales declined by 7%, with Greater China recording a 5% decrease after initial pent-up demand faded. While the company’s direct-to-consumer sales in Greater China grew at a rate of more than 30%, franchise revenues were below the prior year level also due to adidas’ disciplined approach to sell-in. The overall environment remained challenging in Latin America (-13%) and Emerging Markets (-10%), where the pandemic continued to disrupt operations and several stores remained closed.

The company recorded net income from continuing operations of 578 million euros (2019: 644 million euros).


First Nine Months

In the first nine months of 2020, revenues decreased by 18% on a currency-neutral basis and by 20% in euro terms to 14.297 billion euros (2019: 17.802 billion euros). From a brand perspective, currency-neutral revenue for brand adidas decreased by 18%, while Reebok revenue declined by 20%. This development was mainly driven by broad-based store closures due to the global spread of the coronavirus pandemic in the first half of the year. During the nine-month period, adidas reported a net income from continuing operations of 291 million euros (2019: 1.737 billion euros).


Fourth Quarter Forecast

adidas is expecting gross margin to be around the prior year level in the last quarter of the current fiscal year. 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% and no further material slowdown of global store traffic.

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