Adidas is projecting that its sales would decline by a mid-single-digit rate in the first quarter of 2022 as continued supply shortages due to Covid-19 lockdowns in Vietnam late last year are seen shaving some €600 million of its top line during the period. They already shaved €400 million from its turnover in the fourth quarter of 2021, leading to a currency-neutral drop of 3 percent to €5,137 million for the final three months of last year.
Nonetheless, Adidas anticipates a sales increase in the mid-to-high teens in the second quarter and for the balance of 2022, backed by an “extraordinarily strong” order book and leading to a forecast currency-neutral growth of 11 to 13 percent for the full year.
While Adidas expects sales in Russia to take a hit from the conflict in Ukraine, its business in China is expected to pick up under the leadership of a newly appointed CEO, Adrian Siu. As previously reported, Adidas has decided to close all its 500-odd stores in Russia and Ukraine as well as its Russian web store, following Russia’s invasion of Ukraine. It has also suspended its sponsorship of the Russian Football Federation.
In the fourth quarter, Covid-19 related lockdowns negatively affected the company’s sales in the Asia-Pacific region. China continued to be a challenging market, following a boycott called last year by state media and social media users over Western allegations of human rights abuses in Xinjiang.
| Adidas - Net Sales | ||||
|---|---|---|---|---|
| Quarter ended Dec. 31 (€ million) | ||||
| 2021 | 2020 | % Change (€ terms) | % Change (currency neutral) | |
| EMEA | 1,832 | 1,559 | 17.5 | 15.2 |
| North America | 1,303 | 1,317 | -1.1 | -3.7 |
| Greater China | 1,037 | 1,287 | -19.4 | -24.3 |
| Asia-Pacific | 541 | 587 | -7.8 | -6.0 |
| Latin America | 397 | 365 | 8.8 | 8.7 |
| Other Businesses | 28 | 27 | 3.7 | 4.1 |
| Source: Adidas | ||||
In the three months ended on Dec. 31, 2021, Adidas’ sales rose by 15.2 percent on a currency-neutral basis in the EMEA region and by 8.6 percent in Latin America. They declined by 3.7 percent in North America, 24.3 percent in Greater China, and 6.0 percent in Asia-Pacific.
In light of supply shortages, Adidas said it continued to prioritize its DTC business during the quarter. As a result, DTC revenues were steady versus the year earlier, reflecting a 14 percent increase compared to 2019. Despite a strong increase in full-price sales, revenues in the company’s own digital channel declined by 2 percent following an exceptionally strong year in 2020. Compared with the same period of 2019, e-commerce revenues increased by 39 percent in the fourth quarter.
The brand added 71 million more members to its digital ecosystem during the past year, building up to a total membership base of over 200 million customers. At the same time, Adidas continued to invest in new physical stores. It opened 240 new stores in the course of last year, resulting in 61,000 additional square meters of retail space. DTC represented 38 percent of its total revenues. Online sales made up 34 percent of the turnover, including six percentage points realized through third-party digital platforms.
The gross margin declined by 0.1 percentage points to 49.0 percent in the fourth quarter, as higher full-price sales nearly made up for the negative impact of additional freight costs exceeding €100 million and continued headwinds from unfavorable currency developments.
| Adidas - Income Statement | |||
|---|---|---|---|
| Quarter ended Dec. 31 (€ million) | |||
| 2021 | 2020 | % Change | |
| Net sales | 5,137 | 5,142 | -0.1 |
| Cost of sales | 2,618 | 2,615 | 0.1 |
| Gross profit | 2,519 | 2,526 | -0.3 |
| Royalty & commission income | 33 | 18 | 83.3 |
| Other operating income | 15 | 13 | 15.4 |
| Other operating expenses | 2,501 | 2,331 | 7.3 |
| Marketing and POS expenses | 715 | 662 | 8.0 |
| Operating overhead expenses | 1,786 | 1,670 | 6.9 |
| Operating profit | 66 | 225 | -70.7 |
| Net financial income | 17 | 11 | 54.5 |
| Net financial expenses | 39 | 76 | -48.7 |
| Pre-tax | 44 | 160 | -72.5 |
| Tax | -79 | 17 | – |
| Net income from continuing operations | 123 | 143 | -14.0 |
| Net gains/losses from discontinued operations | 89 | 14 | 535.7 |
| NET | 213 | 157 | 35.7 |
| Euros/share (diluted) from continuing operations | 0.58 | 0.70 | -17.1 |
| Source: Adidas | |||
Adidas’ operating margin narrowed to 1.3 percentage points from 4.4 percent, as marketing and point-of-sale expenses increased by 8 percent to €715 million to support the introduction of new products and to “elevate the customer experience across all touchpoints.” Operating overhead expenses increased by 7 percent to €1,786 million and included about €60 million in stranded costs tied to the divestiture of the Reebok business.
Net income from continuing operations declined to €123 million in the quarter from €143 million the year earlier.
Sales went up by 16% in 2021
For the full year, Adidas saw reported sales rise by 15 percent to €21,234 million, with currency-neutral growth of 16 percent. Adidas said the challenging Chinese market environment, Covid-19 related restrictions and supply chain constraints reduced its top line by over €1.5 billion. In “non-disrupted” markets, which represented 75 percent of the global turnover, the company achieved an overall sales increase of 23 percent.
| Adidas - Net Sales | ||||
|---|---|---|---|---|
| Year ended Dec. 31 (€ million) | ||||
| 2021 | 2020 | % Change (€ terms) | % Change (currency neutral) | |
| EMEA | 7,760 | 6,308 | 23.0 | 24.0 |
| North America | 5,105 | 4,519 | 13.0 | 16.6 |
| Greater China | 4,597 | 4,342 | 5.9 | 3.0 |
| Asia-Pacific | 2,180 | 2,083 | 4.7 | 7.7 |
| Latin America | 1,446 | 1,035 | 39.7 | 47.2 |
| Other Businesses | 145 | 149 | -2.7 | -2.0 |
| Source: Adidas | ||||
The overall sales growth reflected 17 percent growth in North America, a 47 percent rise in Latin America and a 24 percent improvement in EMEA, where sales were also up by a double-digit rate compared to their 2019 level. Sales in Greater China inched up just 3 percent, and they rose by 8 percent in the rest of the Asia-Pacific region.
Operating margins increased to 18.8 percent of sales in North America, 21.4 percent in EMEA and 18.1 percent in Latin America. They fell to 26.0 percent in Greater China and 20.9 percent in Asia-Pacific.
Running, training and lifestyle grew at double-digit rates, and football and outdoor grew strongly as well. Adidas’ CEO, Kasper Rorsted, noted that the brand won more marathons around the world than any other one, thanks in part to the introduction of new technologies.
The company’s gross margin inched up by 0.7 percentage points to 50.7 percent as higher full pricing, selected price increases and better inventory management and the non-recurrence of the previous year’s purchase order cancellation were largely offset by headwinds from significant increases in sourcing and freight costs, negative currency impacts, a change in the channel mix and a lower contribution from the high-margin Chinese market.
| Adidas - Income Statement | |||
|---|---|---|---|
| Year ended Dec. 31 (€ million) | |||
| 2021 | 2020 | % Change | |
| Net sales | 21,234 | 18,435 | 15.2 |
| Cost of sales | 10,469 | 9,213 | 13.6 |
| Gross profit | 10,765 | 9,222 | 16.7 |
| Royalty & commission income | 86 | 61 | 41.0 |
| Other operating income | 28 | 42 | -33.3 |
| Other operating expenses | 8,892 | 8,580 | 3.6 |
| Marketing and POS expenses | 2,547 | 2,373 | 7.3 |
| Operating overhead expenses | 6,345 | 6,207 | 2.2 |
| Operating profit | 1,986 | 746 | 166.2 |
| Net financial income | 19 | 29 | -34.5 |
| Net financial expenses | 153 | 196 | -21.9 |
| Pre-tax | 1,852 | 578 | 220.4 |
| Tax | 360 | 117 | 207.7 |
| Net income from continuing operations | 1,492 | 461 | 223.6 |
| Net gains/losses from discontinued operations | 666 | -19 | – |
| NET | 2,158 | 443 | 387.1 |
| Euros/share (diluted) from continuing operations | 7.47 | 2.31 | 223.4 |
| Source: Adidas | |||
The overall operating margin improved by 5.3 percentage points to 9.4 percent, while net income from continuing operations surged to €1,492 million from €461 million in 2020.
Inventories declined by 12 percent on a currency-neutral basis as compared to the end of 2020, mostly due to the divestiture of Reebok but also because of industry-wide supply chain constraints and better inventory management. Receivables increased by 6 percent, driven by double-digit sales growth, while payables declined by 6 percent, reflecting the Reebok divestiture and normalization of payment terms.
Adidas said its sales outlook for 2022 already includes a risk of up to €250 million in its Russia/CIS region, or about 50 percent of its total revenues in the area last year due to the war in Ukraine and the suspension of its retail and e-commerce operations in Russia. The region only represented about 2 percent of total sales in 2021., but it generated sales of €100 million in the first two months of 2022.
Adidas will continue to pay the wages of its 6,000-odd employees in the region. It will pay less on store rentals as the local lease contracts are based on sales..“We strongly condemn any form of violence,” said Rorsted, while stressing that the safety of its employees is the top priority for the company under the circumstances. He also said he felt that consumer confidence and sports participation would remain high in the rest of the world.
For 2022, the company sees sales growing in all the regions on a currency-neutral basis. Sales in North America and Latin America are forecast to grow at mid- to high-teens rates. Growth in the mid-teens is forecast for EMEA and Asia-Pacific. Under the new management, sales in Greater China are expected to rise in the mid-single-digit range.
The gross margin is expected to expand to between 51.5 and 52.0 percent in 2022, as a positive channel mix effect, significant price increases and favorable currency effects are seen outweighing a significant increase in supply chain costs. Adidas anticipates that the total cost per piece will double compared with 2021, while air freight costs are seen increasing further in 2022 despite a decline in volumes.
The operating margin is projected to increase to 10.5 to 11.0 percent, and net income is forecast to come in between €1.8 billion and €1.9 billion.
Adidas plans to accelerate new product releases, aiming for a weekly clip. It will continue to build up Adidas Originals in the premium segment of the market, following its recent collaborations with Prada and Gucci. Innovative products will be launched in the basketball segment by the end of this year.
The bvrand will continue to allocated more than 60 percent of its cpital expenditures to the improvement of its digital operations and to its store fleet. It plans open more stores, especially in North America, including more than 20 so-called “halo stores” intended to elevate the customer experience.
The brand will also continue to invest in marketing, working closely with its 500-odd brand partners. Without disclosing any details about the new long-term deal, Rorsted announced that it will become the sponsor of the Italian Football Federation next January, which won the latest European Championships, to keep its N° 1 or 2 position in football. It will take the place of Puma.
