Adidas raised its guidance for full year after its sales growth accelerated in the first quarter, improving its outlook despite the impact of extended Covid-19 lockdowns in Europe, industry-wide supply chain challenges and geopolitical tensions. Adidas now expects currency-neutral sales to increase at a high-teens rate, an improvement on its previous guidance of mid-to-high-teens growth. In the second quarter alone, sales are seen jumping by about 50 percent, fuelled by an “array of innovative product releases” and the positive impact from major sport events like the UEFA Euro and Copa America football competitions. 

In the first quarter, Adidas’ net income from continuing operations, excluding Reebok, increased to €502 million from €26 million in the first quarter of 2020. The bottom line would have been higher without lingering “stranded costs” of around €60 million resulting from keeping Reebok integrated into the organization until its sale, which is predicted to be completed by the end of this year.

While declining to comment further on the process going on for the sale of Reebok, the management said that it had raised “strong interest” from investors, adding that the brand delivered an encouraging 12 percent sales increase in the first quarter.

Excluding Reebok, Adidas’ rose in the quarter by a reported 20.2 percent to €5,268 million, ahead of an analyst consensus of €5,010 million. At constant exchange rates, the growth stood at 27 percent, and it would have been in the mid-thirties without the drag related to store lockdowns and supply chain issues. Comparatively, Adidas had a currency-neutral sales growth of just 1 percent in the fourth quarter of 2020.

Growth in China will be lower this year

Sales in Greater China surged by 156 percent in the local currency, despite a boycott called by some consumers in mainland China in March against western brands, including Adidas, that have taken a stand against China’s treatment of the ethnic Uyghurs.

Morningstar has reported sales declines of 78 percent for Adidas and 59 percent for Nike last month on Tmall, although its total sales of sportswear were off by 11 percent, indicating that many consumers are just sitting off the controversy. Echoeing a similar statement by Puma, Adidas admits that it suffered a “significant” drop in traffic across physical and digital channels in China at the end of March, but said that it has experienced a “slow but steady” recovery in the past couple of weeks, as the company started again to tell its brand stories on its digital channels, to revitalize physical retail and to particpa in events such as the 5/5 shopping festival in Shanghai. The positive trend is expected to continue, but on the while, the growth in China will likely be lower this year than in the rest of the world.

Currency-neutral sales rose by 7.6 percent in the EMEA region and by 8.1 percent in North America, but the growth in both regions would have been in the double digits if there had been less disruption at U.S. ports and fewer retail lockdowns in Europe. Sales increased by 3.9 percent in the rest of the Asia-Pacific area and by 18.0 percent in Latin America.

As shown in the accompanying chart, Greater China remained the most profitable region for Adidas, generating an operating margin (Ebit) of 32.3 percent. Ebit margins grew the most in Greater China, North America and Latin America as compared to the same quarter of 2020.


Adidas Group
Net Sales 
 (Million euros, Quarter ended on March 31)
  2021 2020 % Change (€ terms) % Change (currency neutral)
EMEA 1,770 1,705 3.8 7.6
North America  1,157 1,166 -0.8 8.1
Greater China 1,402 559 150.8 155.9
Asia-Pacific 603 602 0.2 3.9
Latin America  297 303 -2.0 18.0
Other Businesses 39 47 -17.0 -16.1
TOTAL 5,268 4,382 20.2  
EBIT margin
  2021 2020 Change   
EMEA 21.7 19.7 2.0 pp  
North America  17.8 7.1 10.7 pp  
Greater China 32.3 16.0 16.3 pp  
Asia-Pacific 26.4 25.2 1.2 pp  
Latin America  19.8 6.9 12.9 pp  
Source: Adidas

Lockdowns impact European sales

Covid-19 lockdowns had the biggest impact in the EMEA region, where the Adidas store opening rate fell below 50 percent in March, but this was offset by higher convrsion rates and a 65 percent in digital sales, and the opening rate has since increased to almost 80 percent in the region. Globally, 89 percent of all stores were open at the end of the quarter, auguring well for the balance of the year.

Direct-to-consumer revenues went up by 31 percent in the first quarter and accounted for 34 percent of all sales in the period. Despite the ongoing lockdowns, sales rose by 28 percentat Adidas’ physical stores, whose number declined to 2,174, or 11 fewer doors than one year ago. Revenues from e-commerce increased by 43 percent on top of the 35 percent growth seen in the first quarter of 2020, almost doubling over the last two years. Half of the company’s own digital sales were conducted through its apps, where membership numbers have risen to almost 200 million.

Growth in the company’s top line was strongest in footwear, with a 31 percent rise in currency-neutral sales. Apparel sales increased by 28 percent in local currencies while sales of equipment and accessories declined by 7 percent.

The running, training, lifestyle and outdoor categories enjoyed the fast growth. Running and training were up by about 20 percent and over 30 percent, respectively. Outdoor recorded nearly 60 percent growth on the back of Terrex’ new collection for fast trail running.

 Forex impacts the gross margin

The quarterly gross margin increased by 2.1 percentage points to 51.8 percent, but remained below the 2019 level due to a negative impact of 2.7 percentage points from changes in foreign currency rates. Offsetting this factor, the improvement was mainly due to lower sourcing costs, as costs related to cancellations of purchase orders with suppliers seen in the first quarter of 2020 at the start of the pandemic were not repeated. Also behind the higher gross margin was a better channel and market mix, reflecting higher prices on some new products and strong growth in global e-commerce and in the more profitable Greater China region.

Inventories decreased by 9 percent year-on-year to €3,938 million, supported by the deconsolidation starting from the first quarter of Reebok ahead of its planned divestment, although inventories were also down on a comparable basis. In currency-neutral terms, inventories were off by 8 percent.

Average operating working capital as a percentage of sales grew to 23.7 percent from 21.0 percent the year before, reflecting a 17 percent decrease in payables amid a normalization of the company’s payment terms with vendors. Receivables decreased 12 percent.

Other operating expenses declined by 5 percent to €2,047 million, with marketing and point-of-sales expenses decreasing by 17 percent to €541 million as physical marketing activities were still limited in many parts of the world. On the other hand, Adidas said it “significantly” ratcheted up its digital marketing investments to support its increasingly important DTC business, contributing to the addition of more than 30 million new members during the quarter, especially in Latin America. Overall, marketing and point-of-sale expenses decreased by 4.5 percentage points to 10.3 percent of sales, but it’s going to go up again for the balance of the year.

Operating overhead expenses were up by 1 percent to 1,506 million as a result of increased logistics costs resulting from e-commerce growth. As a result, the operating margin widened by 12.3 percentage points to 13.4 percent, approaching its pre-pandemic level, although the negative impact from currency headwinds is seen reversing only in the second half of the year.

The roll-out of Adidas’ new “Impossible is Nothing” campaign led to 150 million views in the first week alone, and a new “Run the Ocean” campaign will follow in June to back up the brand’s strong commitment to sustainability. Adidas sees itself well prepared for the European football championships, where it will sponsor eight out of the 14 teams. It regards itself as “Tokyo ready” with 14 Olympic teams and 35 sports federations under contract.

The main podium shoe for its athletes in the Olympics will be the new 4DFWD running show, which will be available to its Creators Club members on May 15. Developed through 3D printing, its 4D midsole technology has been developed in partnership with Carbon, that reduced the peak breaking force by 15 percent during running, while redirecting vertical impact forces into horizontal forward motion.

For the full year, Adidas continues to forecast a gross margin of about 52.0 percent, up from 50.0 percent in 2000, and an operating margin of 9-10 percent as compared to 4.0 percent last year. It still anticipates net income from continuing operations of €1.25-1.45 billion, roughly triple the €461 million reported for last year. It will still include residual stranded costs of around €200 million for Reebok.

Adidas Group Income Statement
(Million euros, Quarter ended on March 31)
    2021 2020 % Change
Net sales Footwear  2936 2385 23.1
  Apparel  2081 1709 21.8
  Accessories and gear 251 287 -12.5
  Total 5,268 4,381 20.2
Cost of sales 2,538 2,203 15.2
Gross profit 2,730 2,178 25.3
Royalty & commission income 14 15 -6.7
Other operating income 7 2 250.0
Other operating expenses 2,047 2,147 -4.7
Marketing and POS expenses 541 648 -16.5
Operating overhead expenses 1,506 1,498 0.5
Operating profit 704 48 1366.7
Net financial income 3 7 -57.1
Net financial expenses 38 42 -9.5
Pre-tax 669 13 5046.2
Tax 166 -13
Net income from continuing operations 502 26 1830.8
Net gains/losses from discontinued operations 52 0
NET   554 26 2030.8
Euros/share (diluted) 2.60 0.16 1525.0
Source: Adidas