Adidas cuts profitability goal amid China lockdowns

Bloomberg

Adidas SE cut its profitability targets for this year and forecast a plunge in sales of sporting goods in China as the Covid Zero policy keeps stores shut.
The company also said supply bottlenecks in Vietnam have reduced the availability of products, eroding sales. The shares fell as much as 6.8%, approaching a two-year low.
A fifth of the shoemaker’s business is underperforming amid a whirlwind of geopolitical challenges. First-quarter revenue to greater China fell 35%, and the company has been starting to increase prices as higher costs for transport, shoes and garments erodes profitability.
Foreign brands are struggling to hang onto China as a growth driver after almost a year of consumer boycotts and preferential treatment for homegrown companies. The country’s Covid policy is worsening matters, as a quarter of the company’s stores in the market are closed. Adidas replaced the head of its Chinese operations last month, promoting an executive who has been managing a local brand.
Adidas lowered its gross margin target this year to 50.7%. Previously it aimed for 51.5% to 52%. The company also cut its operating margin forecast.
Sales growth and profit will be at the lower end of its forecasts, the company also said. Adidas has been predicting revenue to increase by 11% to 13% this year on a currency-neutral basis, as well as adjusted net income of 1.8 billion euros to 1.9 billion euros ($2 billion).
Revenue fell 3% on a currency-neutral basis in the first quarter.
Adidas said it missed out on 400 million euros of sales because lockdowns in Vietnam last year made it impossible for factories to produce enough.
Adidas has said the war in Ukraine is putting as much as 250 million euros of revenue at risk. That’s half of its business from Russia and the CIS region, and represents about 1 percentage point of growth in total sales. Executives described the financial effect as “minuscule” on a call with reporters.
Separately, Adidas said it formed a partnership with Foot Locker Inc aiming to add 100 million euros to revenue by boosting basketball sales and expanding women’s, children’s and apparel lines.