Despite facing threats of boycotts for expressing concern over the alleged mistreatment of Uyghurs, Adidas AG remains confident in its business in China.
Today, the company posted first-quarter profits of 502 million euros (or roughly $610 million at current exchange), or earnings of 2.60 euros (or $3.16) per share, versus Wall Street’s expectations of earnings of $2.49 per share. Revenues for the three months ended March 31 jumped 20% to 5.27 billion euros (or $6.4 billion), compared with consensus bets of $6.05 billion.
At the company’s conference call, CEO Kasper Rorsted told analysts that sales across all of its key markets surged above pre-pandemic levels, with Greater China recording a 156% spike. Comparatively, North America and the Europe-Middle East-Africa region improved 8%, while Latin America advanced 18% and the Asia-Pacific rose 4%.
“We’re enjoying the momentum that we have right now,” the chief executive told market watchers. “There’s no reason it shouldn’t continue in the second half.”
The Q1 2021 report was released a day after an analysis from Morningstar Inc., which was first reported by Bloomberg, suggested that the online sales of Adidas — as well as rival sportswear giant Nike Inc. — plummeted in China due to the brands’ stance against using cotton sourced from the Xinjiang region. According to the U.S. Department of Labor, China has detained more than a million Uyghurs and other mostly Muslim minorities in the country’s far western Xinjiang Uyghur Autonomous Region, where they are allegedly working in conditions of forced labor.
Around mid-March, the Three Stripes — which has deals with many Chinese A-listers — became a trending topic on China-based social media websites for its position on the international issue. Dilraba Dilmurat, Jackson Yee, Eason Chan and five other celebrities subsequently said that they would terminate their partnerships with the Germany-based chain.
In today’s conference call, Rorsted explained that Adidas is still in “intense dialogue with those who left us.” As for its relationship with suppliers in the country, however, he said “there’s been no constraint,” while the company is also focused on winning back some of its Chinese shoppers.
“Our first priority is to show consumers appreciation and respect. This applies to China and every other market in which we operate,” said the CEO. “After a significant drop and traffic across physical and digital channels in China at the end of March, we have experienced a slow but steady recovery throughout the past couple of weeks and expect this trend to continue.”
He added, “While the trend is positive, it is still too early to tell what Q2 in China will look like in detail … Regardless of these scenarios, we continue to expect strong growth in China for 2021, and looking further ahead, there is no question that China will remain a fast-growing market and one of our long-term growth drivers.”
Despite the situation in China as well as the impact of prolonged lockdowns in Europe and industry-wide supply chain challenges, Adidas has upgraded its outlook for the fiscal year: It now anticipates currency-neutral sales to increase at a high-teens rate, with “significant top-line acceleration” in the second quarter as sales are expected to see a 50% gain.