Adidas is the latest global retailer to report headwinds to its business due to lockdowns in China.
The German athletic-wear brand on Friday reported that currency-adjusted sales in Q1 dropped by 3% to 5.3 billion euros ($5.58 billion). Net income dropped 38%, to 310 million euros ($327.8 million).
Sales in Greater China dropped 35% in Q1, due to Covid-19 related challenges in the market. China has employed a strict “zero-Covid” policy to combat outbreaks of COVID-19, which has led to extended strict lockdowns in various regions, most recently in Shanghai. Adidas confirmed to FN in April that its more than 60 stores in Shanghai were temporarily closed.
Adidas said it expects the sales hit in China to persist in Q2. For the year, the company predicts revenues in Greater China to “decline significantly” and a 200 million euro loss from supply chain issues.
In light of these headwinds, the company announced an updated full-year guidance to reflect the conditions in this crucial market. Adidas confirmed its top-and bottom-line outlook for 2022, but expects to land in the lower range of estimates for revenues and net income. The company lowered its expectations for gross margin and operating margin for the fiscal year as well.
“In this environment, characterized by severe external challenges, it is imperative to stay focused on our strategic objectives,” said CEO Kasper Rorsted. “While we will remain agile, we will not jeopardize our long-term growth opportunity for short-term profit optimization.”
Despite the challenges, Adidas is confident that its performance in other Western markets could help compensate for the slowdown in China. In Q1, currency-neutral sales grew 13% across North America, 9% across EMEA and 38% across Latin America.
In the second half of 2022, Adidas expects net sales to grow more than 20% as a result of momentum in Western markets, new products and sporting events.
Adidas is not the retailer reporting significant impacts from lockdowns in China. Earlier this week, Crocs executives noted challenges for the Crocs and Hey Dude brands in China. Since most of Hey Dude’s production takes place in China, the brand has been impacted by factory closures in the region over the last few months.
On Friday, Under Armour offered weak guidance for fiscal year 2023, reflecting supply chain delays and COVID-19 impacts across China. The company expects revenue to increase between 5% and 7%.
“As global supply challenges and emergent COVID-19 impacts in China eventually normalize, we are confident that the strength of the Under Armour brand coupled with our powerful growth strategy positions us well to deliver sustainable, profitable returns to shareholders over the long-term,” said Under Armour president and CEO Patrik Frisk in a statement.