Adidas has adjusted its top line 2022 guidance due to a worsening outlook for its Greater China business. While second-quarter 2022 results slightly exceeded expectations, given continued strong momentum in Western markets and a return to growth in Asia-Pacific, the company has reported a slower-than-expected recovery in China since the start of Q3. Previously, the company had expected currency-adjusted sales in the region to remain stable year-on-year in the second half of the year, in the absence of major lockdowns as the third quarter began. However, Adidas now expects sales in China to decline by a double-digit percentage throughout the remainder of the year due to ongoing extensive Covid-19 restrictions.
As a result, the company is now forecasting mid to high-single-digit percentage sales growth as a whole on a constant currency basis in fiscal 2022 (previous guidance: in the low 11% to 13% range). Based on the less favorable market mix due to lower-than-expected sales in China, as well as the impact of initiatives to reduce excess inventory in this market by year-end, the company’s gross margin for 2022 is now expected to be approximately 49.0 percent (previous guidance approx. 50.7%). Accordingly, the company now expects an operating margin of around 7.0 percent in fiscal 2022 (previously forecasted at around 9.4%). Profit from continuing operations is expected to reach a value of around €1.3 billion (previously forecasted at the lower end of the range between €1.8 billion and €1.9 billion).
To date, it has not experienced any significant slowdown in the sell-through of its products or significant wholesale order cancellations in the other markets, the company said. Nevertheless, against the backdrop of more challenging macroeconomic conditions for the second half of 2022, the adjusted forecast also considers a potential slowdown in consumer spending in these markets.
However, despite these negative signs, Adidas expects double-digit sales growth for the group as a whole during the year’s second half. Besides a favorable comparison basis to the prior year, the company is building on a solid product range for the upcoming months, the opportunity to restock with wholesale customers given full product availability returning for the first time, and support from major sporting events.
Based on preliminary figures, Adidas’ second quarter revenues increased 4 percent on a currency-neutral basis. This was driven by strong double-digit growth in North America and Latin America, high-single-digit growth in EMEA (also double-digit growth excluding the negative impact of Russia/CIS) and a return to growth in Asia-Pacific. In euro terms, sales increased by 10 percent to €5.596 billion. The company’s gross margin decreased by 1.5 percentage points to 50.3 percent in the second quarter, and the operating margin was 7.0 percent (2021: 10.7%). Profit from continuing operations was €360 million in the second quarter (2021: €387 million), supported by a one-time positive tax effect of over €100 million resulting from the reversal of a provision recognized in a prior year.
