China Boycott And Vietnam Factory Closures Hit Revenue Of Adidas

The second quarter results of Adidas were significantly impacted by a boycott of Western brands by Chinese consumers, the company reported while also reporting hit to the quarter’s business because of closure of factories in major supplier Vietnam due to a fresh outbreak of Covid-19 infections.

Despite this, its forecast for the entire year with respect to its sales and profitability were raised by the German sportswear company with the company claiming to witnessing a recovery in demand in China since the calls for the boycott was given in late March.

The company also hoped restoration of production in Vietnam will happen soon.

However the results brought down share prices of Adidas by 4.1 per cent with analysts noting the growth rate of the company slower than its rivals including Nike and Puma. Both the rival sportswear companies reported an almost doubling of sale revenues in their recent earnings reports.

There was a 52.7 per cent growth in Adidas’ second quarter sale revenues to 5.077 billion euros ($6 billion) with its operating profit coming in at 543 million euros which was higher than the average forecasts of analysts.

Its guidance for 2021 was raised by the company as it predicted sales growth of 20 per cent and net income from continuing operations to reach 1.4-1.5 billion euros. In comparison, Puma forecast an at least 20 per cent growth in its sales for 2021.

The assumptions made in the revised and raised outlook for the year by Adidas include the return to normalcy in the sourcing network of the company by the end of September as well as the belief that Adidas will continue to experience a steady recovery in demand and sales in Greater China, where there was a 16 per cent decline in sales in the second quarter.

In late March this year, there were online attacks in China on Western brands including Adidas over past statements of some of the companies that said that the companies would not purchase cotton from Xinjiang province in China as raw materials following reports about severe and sweeping human rights abuses against Uyghur Muslims, even though Chiona has denied such allegations.

The company’s Chief Executive Kasper Rorsted told journalists that there was already growth being registered in Adidas’ online sales in China in June. Rorsted added that he expects strong growth for the full year to be registered in China as he welcomed a government drive to promote youth sport.

Following the end of a coronavirus lockdown on August 15, production in Vietnam is expected to begin again, the company said, and added that it is already working to relocate production to other centres in the meantime.

About 28 per cent of the total sourcing for Adidas is accounted for by Vietnam usually and shoes for the company are mostly made by the factories in Vietnam and there is a gap of about three to four months from placing orders to the products hitting the shelves.

Adidas’ finance chief Harm Ohlmeyer said that the company could face more than 500 million euros in lost sales in the second half because of the combination of the impact of issues in its supply chains, new lockdowns because of Covid-19 in Asia and tensions with China.

(Adapted from IrishTimes.com)

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