Adidas Slashes Outlook for Q2, Citing Slow Recovery in Greater China

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Adidas is the latest retailer to cut its outlook for 2022.

The German sportswear brand on Tuesday said its recovery in Greater China has been slower than it expected since Q3 began, due to persisting Covid-19 restrictions. As such, Adidas said it expects revenues in Greater China to decline at a double-digit rate through 2022.

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Adidas also expects total currency-neutral revenues to grow at a mid- to high-single-digit rate in 2022. It previously expected the lower end of the 11% to 13% range. Net income from continuing operations in 2022 is expected to be around 1.3 billion euros, updated from the previously estimated range of 1.8 billion to 1.9 billion euros.

In Q1, Adidas reported headwinds to its business due to lockdowns in China, with sales in the region dropping 35% in Q1, due to Covid-19 related challenges in the market. Throughout the pandemic, China has employed a strict “zero-Covid” policy to combat outbreaks of COVID-19, which has led to extended strict lockdowns in various regions, such as in Shanghai.

Adidas confirmed to FN in April that its more than 60 stores in Shanghai were temporarily closed. The company previously said it expects revenues in Greater China to “decline significantly” and a 200 million euro loss from supply chain issues.

Adidas said the slowdown was mostly confined to China, though the new guidance account for potential slowdowns in consumer spending in other markets due to conditions into the macro-economic environment.

Walmart yesterday lowered its business outlook for the second quarter and the full year, citing inflation and an inventory surplus. According to Walmart, the increase in food prices impacted customers’ ability to spend on other categories, which led to more markdowns to help clear out excess inventory, especially apparel.

As of Tuesday afternoon, Target, Kohl’s and Macy’s shares were all down.

Target last month also cut its guidance for Q2 as it rolls out a plan to shed its excess inventory with additional markdowns. Sales slowed in categories such as home, electronics, sporting goods and apparel as consumers spent more across essential categories like food and beverage.

Higher than usual inventories due to shifting spending habits amid inflation has been a major problem for other retailers as well, especially as consumer prices surge at record highs. Executives from Target, Foot Locker, Macy’s and more said last quarter that they expect to see a surge in discounts as they look to correct their large levels of inventory.

Adidas is set to report earnings for the second quarter on August 4.