Empty Promise

Image source: Olga Kovalenko and ESB Professional - Shutterstock

What's going on?

Adidas reported a drop-off in quarterly sales on Friday, after the German sportswear giant found itself a bit light on… well, everything.

What does this mean?

China was once touted as a hotbed of opportunity for Adidas, but it’s been causing one headache after another lately: first a year-long boycott of the company’s products, now a series of lockdowns that have kept its stores shut. Lockdowns in Vietnam have been just as problematic, mind you, with Adidas’s manufacturing hubs grinding to a halt and leaving it short on stock. That’s a disruption that the company reckons added up to about $420 million in lost sales last quarter.

All this chaos dragged down Adidas’s currency-neutral sales – which strip out the effect of currency swings – by 3% from the same time the year before. And while it’s expecting sales to grow again this quarter, the company doesn’t have such high hopes for profit: it cut its target for the year, and investors sent its stock down 5%.

Why should I care?

The bigger picture: Adidas wastes not, wants not.
Adidas is the world’s second-biggest sportswear company after Nike, but it’s not above taking its rival’s hand-me-downs. See, Nike has been moving away from third-party sellers, with Foot Locker recently acknowledging that sales of Nike products will make up around 20% less of its total sales than they did in 2020. Foot Locker, then, announced that it’d stock more of Adidas’s gear instead, with the aim of tripling the company’s product sales in its stores by 2025.

Zooming out: China’s nothing if not stubborn.
Adidas lowered its profit target partly because it thinks the China situation will continue for some time, and it has a point: the government doubled down on its zero-Covid policy late last week, despite the damage it’s doing to the country’s economy (tweet this). Data out last week, for instance, showed that the country’s services sector suffered its second-biggest contraction since the start of the pandemic last month.

Originally posted as part of the Finimize daily email.

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