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Adidas cuts profit target as China sales slump amid Covid-19 lockdowns across major market

A man wearing face mask walks past an Adidas store during the coronavirus disease (COVID-19) pandemic in Hong Kong on April 14, 2022. Photo: China
A man wearing face mask walks past an Adidas store during the coronavirus disease (COVID-19) pandemic in Hong Kong on April 14, 2022. Photo: China

Adidas cut its profitability targets for this year and forecast a plunge in sales of sporting goods in China as the Covid-zero policy keeps stores shut.

The company also said Friday supply bottlenecks in Vietnam have reduced the availability of products, eroding sales. The shares fell as much as 4.4 per cent.

A fifth of the shoemaker’s business is underperforming amid whirlwind of geopolitical challenges. First-quarter revenue to Greater China fell 35 per cent, and the company has been starting to increase prices as higher costs for transport, shoes and garments erodes profitability.

Foreign brands are struggling to hang onto China as a growth driver after almost a year of consumer boycotts and preferential treatment for home-grown companies. The country’s Covid-zero policy is only worsening matters for retailers there. Adidas replaced the head of its Chinese operations last month, promoting an executive who has been managing a local brand.

Adidas lowered its gross margin target this year to 50.7 per cent. Previously it aimed for 51.5 per cent to 52 per cent. The company also cut its operating margin forecast.

Sales growth and profit will be at the lower end of its forecasts, the company also said. Adidas has been predicting revenue to increase 11 per cent to 13 per cent this year on a currency-neutral basis and adjusted net income of €1.8 billion to €1.9 billion (US$2 billion).

Revenue fell 3 per cent on a currency-neutral basis in the first quarter. Adidas said it missed out on €400 million of sales because lockdowns in Vietnam last year made it impossible for factories to produce enough.

Adidas has said the war in Ukraine is putting as much as €250 million of revenue at risk. That’s half of its business from Russia and the CIS region, and represents about 1 percentage point of growth in total sales.

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