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Adidas expects supply chain challenges to hit FY21 sales

By Prachi Singh

Nov 11, 2021

Management

Image: Adidas media gallery

Adidas increased its currency-neutral revenues by 3 percent in the third quarter, while In euro terms, Adidas revenues also grew 3% in the third quarter to 5.752 billion euros.

The company said in a release that the challenging market environment in Greater China, extensive Covid-related lockdowns in Asia-Pacific as well as industry-wide supply chain disruptions reduced revenue growth by around 600 million euros in Q3.

From a channel perspective, the company’s top-line development was driven by growth in its own direct-to-consumer channel where currency-neutral sales grew 5 percent, reflecting an increase of nearly 20 percent compared to the 2019 level. Adidas’ e-commerce revenues grew 8 percent, an increase of 64 percent compared to the level of 2019.

“Adidas performed well in an environment characterized by severe challenges on both the supply and demand side. As a consequence of successful product launches we are experiencing strong top-line momentum in all markets that operate without major disruption. Despite all challenges, we are on track to delivering a successful first year within our new strategic cycle,” said Adidas CEO Kasper Rorsted.

Adidas reports strong trading across core markets

The company added that revenues in EMEA and North America both grew 9 percent currency-neutral during the quarter despite the negative impact from significantly longer lead times due to ongoing industry-wide shipping and handling constraints.

In addition, revenues in Latin America grew 55 percent, while sales in Asia-Pacific declined 8 percent reflecting the impact from the extensive lockdowns in the region. In Greater China, the geo-political situation, the resurgence of Covid-related restrictions as well as natural disasters weighed on the company’s top-line performance and led to a revenue decline of 15 percent.

Adidas’ gross margin in the third quarter slightly declined by 0.2 percentage points to 50.1 percent. The company’s net income from continuing operations reached 479 million euros in the quarter compared to 535 million euros in 2020, reflecting basic earnings per share from continuing operations of 2.34 euros compared to 2.58 euros last year.

During the third quarter, Adidas signed an agreement to sell the Reebok brand to Authentic Brands Group for a total consideration of up to 2.1 billion.

Adidas posts bottom-line growth in the first nine months of 2021

In the first nine months of 2021, revenues increased 24 percent on a currency-neutral basis driven by strong double-digit growth in all markets. In euro terms, revenues grew 21 percent to 16.096 billion euros.

The company’s gross margin increased by 0.9 percentage points to 51.2 percent, while net income from continuing operations reached 1.369 billion euros, reflecting an improvement of more than 1 billion compared to the prior year level. Accordingly, basic earnings per share from continuing operations improved to 6.87 euros.

Adidas expects revenue and net income to come in at the lower end of outlook While Adidas continues to expect currency-neutral revenues to increase by a rate of up to 20 percent, growth is now anticipated to come in at the lower end of this range due to the longer-than-expected sourcing disruptions as well as the challenging market environment in China.

Consequently, both operating margin and net income from continuing operations are also forecasted to reach the lower end of the previously communicated ranges of between 9.5 percent and 10 percent (operating margin) and between 1.4 billion euros and 1.5 billion euros (net income from continuing operations).

At the same time, due to significantly higher supply chain costs as well as a less favorable market mix, the gross margin is now expected to increase to a level between 50.5 percent and 51 percent in 2021.