China troubles mar Adidas’s first-quarter result

German sportswear giant Adidas reported a drop in its profits in the first quarter on Friday, as widespread coronavirus lockdowns hurt business in key market China.

The group’s net profit from its continuing operations fell to 310 million euros ($326 million), from 502 million euros in the same quarter last year.

The fall came off the back of a three-percent drop in sales, felt particularly strongly in Asia, the group said in a statement.

First-quarter revenues in China fell by 35 percent and 16 percent in the rest of the Asia-Pacific region, as a series of coronavirus-related lockdowns limited demand for the company’s products.

Drastic health restrictions added to a “challenging market environment” for Adidas in China, the group said.

Adidas has been facing a consumer boycott in China over its refusal to use cotton from Xinjiang in response to accusations of forced Uyghur labour.

The German sports outfitter “will return to growth” in the Asia-Pacific market region, Adidas CEO Kasper Rorsted said in the statement.

The group’s difficulties in China were however due “to continue”, he added.

Adidas expected revenues in the key market to decline by a figure in “lower double-digit territory”, chief financial officer Harm Ohlmeyer said at a press conference.

– ‘Supply constraints’ –

The struggles in Asia contrasted with Adidas’s stronger revenue growth elsewhere, with sales in North America up 12.8 percent.

“Supply constraints as a result of last year’s lockdowns in Vietnam”, where the group has production facilities, suppressed as much as 400 million euros in revenues in the first quarter, Adidas said.

Markets in Europe, the Middle East and Africa were “most impacted by the supply shortages”, the group said, limiting sales growth in the region to 9.1 percent.

The kit-maker also had to fight a “significant increase” in costs for the transport and sourcing of its materials, which put pressure on its profit margins.

Adidas maintained its guidance for 2022, but said the “severe impact” of coronavirus lockdowns in China would keep revenue growth towards the lower end of its 11-to-13-percent range.

The same went for the group’s net income for the year, now expected to sit closer to 1.8 billion euros than 1.9 billion euros.

Shares in Adidas were down by over six percent at 1:30 p.m. (1130 GMT) trading on the Frankfurt Stock Exchange.

sea/dlc/kjm