Retailers Are Split About Their Predictions for Recovery in China Through 2022

Headwinds in China have been the common theme throughout retail earnings reports this season.

Over the last few weeks, Crocs, Under Armour and Adidas all reported headwinds to their businesses in China, largely as a result of extended lockdowns in the regions. China’s strict “zero-Covid” policy to combat outbreaks of COVID-19 has led to extended strict lockdowns in various regions, most recently in Shanghai, a city home to distribution centers and multiple retail store locations. More recently, Allbirds, Wolverine Worldwide and Tapestry also reported similar hits to their China businesses and global supply chain.

Despite the headwinds abroad, some executives remained confident in the potential for recovery in the back half of 2022. At the same time, others are predicting longer-term impacts to their business that could last through 2023.

Wolverine, which owns the Saucony, Merrell, Sperry and Sweaty Betty brands, among others, noted that it was dealing with longer lead times for freight, partly impacted by lockdowns in China. However, the company still reaffirmed its fiscal 2022 guidance for revenue and EPS, and said it expects revenues to be in the range of $2.78 billion to $2.85 billion, with a growth rate of 15% to 18%.

“We expect supply chain to be a lessening, but still meaningful headwinds throughout the year, with evolving COVID issues in China presenting a new potential challenge,” said Wolverine CEO Brendan Hoffman.

Tapestry, which owns Kate Spade, Coach and Stuart Weitzman, also posted an optimistic business outlook for the fiscal year, despite pressures in China. The company anticipates gradual improvements in China, starting with the expected reopening of its regional distribution center in mid-May and the easing of Shanghai lockdowns in the beginning of June.

On the other hand, Adidas, Under Armour and Allbirds all offered weak guidance for the fiscal year, partly due to impacts in their China businesses.

Allbirds co-founder and co-CEO Joseph Zwillinger said that COVID restrictions have slowed sales in stores and slowed overall demand in the region, which the company believes could remain through 2022.

Under Armour, which reported a net loss of $60 million in the quarter, said it expects COVID-19 impacts in China to lessen through fiscal year 2023. Adidas last week said it expects revenues in Greater China to decline “significantly” in 2022. Currently, 25% of Adidas’ stores and 15% of its partner stores are closed in China.

“Given the severity of the situation, a sudden rebound seems unlikely as drastic countermeasures, such as strict lockdowns and containment measures, are leading to a significant drop in consumer spending,” said Adidas CEO Kasper Rorsted.

Next week, when On, Foot Locker and VF Corp. report earnings, some of them will likely highlight similar headwinds regarding the ongoing situation in China.

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