Adidas AG returned to growth in the third quarter but warned that the resurgence of the coronavirus outbreak will weigh on its financial results for the next three months.
The Germany-based sportswear giant announced that income from continuing operations for the period ended Sept. 30 amounted to 578 million euros ($682.69 million) and earnings per share were 2.80 euros ($3.31), compared with the prior year’s profits of 644 million euros and EPS of 3.26 euros. Analysts had predicted earnings of $3.37 per share.
Revenues, on the other hand, decreased 7% to 5.96 billion euros ($7.04 billion), versus market watchers’ expectations of $6.96 billion.
“We saw a strong recovery in our business in Q3,” CEO Kasper Rorsted said in a statement. “Our focus on healthy inventories, profitable sell-through and disciplined sell-in clearly paid off… At the same time, we kept costs under control and delivered a profit improvement of more than 1.1 billion euros ($1.3 billion) compared to Q2.”
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At its namesake brand, sales fell 2.5% in currency-neutral terms, while those at Reebok were down 7.2%. The company reported that it logged a “strong sequential revenue improvement” in the three months, with more than 90% of its owned retail units in business. (Most of its stores had been closed for several weeks during the second quarter due to coronavirus-related restrictions.) While traffic continued to improve, said Adidas, it remained “significantly below” the levels recorded in the previous year.
For e-commerce, Adidas saw a gain of 51% on a currency-neutral basis. Its direct-to-consumer business advanced 13%, accounting for 35% of total sales in the quarter. Its wholesale performance climbed “sharply” but was still below that of last year.
What’s more, the brand shared that all market segments showed a “sequential recovery” in Q3. Currency-neutral sales in Russia and Europe jumped a respective 11% and 4%, returning to growth. In North America, it posted a slight decline of 1% despite positive sales over the first two months of the quarter as consumer spending was temporarily supported by the United States’ fiscal stimulus. Asia-Pacific sales dropped 7%, while Latin America and emerging markets fell 13% and 10%, respectively.
As the number of COVID-19 infections in several of its major markets continue to rise, Adidas has reported the closures of more brick-and-mortar outposts due to renewed lockdown measures. According to the company, its global store opening rate has fallen to 93%, down from 96% at the end of September. It added that stringent social distancing guidelines in certain countries, particularly Europe, had an “adverse” impact on foot traffic.
Overall, the Three Stripes’ top line in the fourth quarter is forecasted to decline in the low to mid-single digits. its operating profit is anticipated to be between 100 million and 200 million euros — assuming no more major lockdowns, a store opening rate of higher than 90% and no further “material slowdown” of global foot traffic at its locations.
“While at the beginning of the quarter we were on track for growth in Q4, a worsening of the pandemic in many regions of the world is again requiring our patience and support,” Rorsted said. “However, this is not taking us by surprise. Thanks to our prudent approach, we are now well prepared to cope with these short-term uncertainties.”
He added, “At the same time, we are even better positioned to benefit from the long-term industry growth drivers accelerated by the pandemic such as health and wellbeing, athleisure and digitization.”