Adidas is forecasting a revenue impact of as much as $1 billion in the first quarter of 2020 due to sales declines in China during the first months of the coronavirus outbreak.
The German sportswear brand reported fourth-quarter and full-year 2019 results on Wednesday, but its top-line gains were overshadowed by its warnings about the fallout from COVID-19, which so far has afflicted 121,564 globally and killed 4,373. The impact has been particularly severe in China, where the virus originated, with tens of millions of people ordered to stay home or restrict travel.
Greater China accounts for 20% of Adidas business, and with store closures and traffic declines in late January through February, the company said it expects revenue in China of 800 million euros to 1 billion euros ($906 million to $1.13 billion) lower than last year.
Operating margin in China is also expected to decline by 400 million euros to 500 million euros ($453 million to $566 million). While the company said it has seen a slight improvement in traffic since February as stores and warehouses reopen and Chinese consumers begin returning to normal life, it is beginning to see its business in Japan and South Korea take a hit as more shoppers there stay home.
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Adidas updated its full-year outlook, forecasting that currency-neutral sales will increase 6% to 8%, operating margin will increase 11.5% to 11.8% and net income from continuing operations will increase 10% to 13%. These figures, however, don’t account for the economic impact of the coronavirus threat.
“As the situation keeps evolving, we cannot yet reliably quantify the magnitude of the overall financial impact in 2020,” Adidas CEO Kasper Rorsted said in a statement. “Regardless of the impact on our business, it remains our top priority to ensure the health and safety of our employees and their families.”
The warning is no doubt a prelude to similarly bleak announcements from other brands in the sector. Also on Wednesday, Puma abandoned the 2020 guidance it issued in February, saying it no longer expected the virus’s impact on its business to be short-lived.
Adidas shares were down more than 13% as of 11 a.m. ET.
For full-year 2019, currency-neutral sales were up 6%, despite supply chain issues the company faced due to an unexpected increase in demand for mid-priced apparel. Its Reebok brand returned to growth, with revenues up 2% over the previous year, driven by substantial growth in its direct-to-consumer channels, where revenue was up 18%. Net income from continuing operations grew 15% to 1.97 billion euros ($2.23 billion), while earnings per share were up 18% to 9.97 euros ($11.25).