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Adidas issues profit warning amid China lockdown woes

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Adidas CEO Kasper Rorsted. REUTERS/Michael Dalder/File Photo

Adidas CEO Kasper Rorsted. REUTERS/Michael Dalder/File Photo

Adidas CEO Kasper Rorsted. REUTERS/Michael Dalder/File Photo

Adidas AG issued a profit warning after its sales were hit by lockdowns and consumer boycotts in China, offsetting strong momentum in its key western markets.

The German sneaker company said although its second-quarter results are "somewhat ahead of expectations" with strong growth in Western markets, the recovery in Greater China was slower than expected.

Sales will now rise by mid-to high-single-digits on a currency-neutral basis this fiscal year, down from previous guidance they would grow by 11pc to 13pc, the company said in a statement Tuesday. The downgrade also accounts for a potential slowdown in consumer spending in its other key markets where shoppers are reining in purchases amid rising inflation.

The new guidance requires Adidas to grow second-half sales by more than 20pc outside of China, something that will require "sizable market share gains," Jefferies analysts led by James Grzinic said in a note. "At this juncture investors are unlikely to give Adidas the benefit of the doubt."

Adidas shares have lost more than third of their value since the start of the year. The company's American depositary receipts fell 7pc on the update, which came after the close of trading in Europe.

Meanwhile, rival brand Puma SE lifted its earnings forecast for the year, citing strong growth in sports such as running, golf and basketball. Puma now expects sales to grow this year by a percentage in the mid-teens, up from a previous target of at least 10pc. Shares gained 4.9pc in pre-market trading, according to Tradegate.

Concerns over Covid-19 haven't gone away in China with lockdowns frequent and mass testing still underway. Retailers have been affected by store closures and even when malls are open, people need a 72-hour PCR test to enter.

Foreign brands are also struggling to hang on to China as a major growth driver amid consumer boycotts and preferential treatment for homegrown companies including Anta Sports Products Ltd. and Li Ning Co. That's been a particular challenge for Adidas, which replaced the head of its Chinese operations in March, promoting an executive who had already been managing a local brand in China.

Adidas said it now expects revenue in Greater China to fall at a double-digit rate for the remainder of the year. That decline and the resulting excess inventory that will need to be cleared, means the company's operating margin is now forecast to be around 7% in 2022, down from previous guidance of 9.4%.

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