German sporting goods giant Adidas has reaffirmed its full-year forecast, even though its second-quarter earnings were squeezed by higher air freight costs as it tried to make up for shortages of mid-priced apparel in North America.
Net income from continuing operations in the three months to 30 June increased 10% to EUR462m (US$517m) from $418m a year earlier, while the company’s gross margin rose 1.2 percentage points to 53.5%. Higher air freight costs to mitigate the supply chain shortages and a less favourable pricing mix were offset by positive currency developments, lower sourcing costs as well as a better product and channel mix, the company said.
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The latest results also saw group revenues climb 5% in euro terms to EUR5.51bn – a currency-neutral rise of 4% – reflecting a 4% rise at the Adidas brand that was driven by a high-single-digit increase in Sport Inspired streetwear. Revenues in Sport Performance declined at a low-single-digit rate, especially in the football category which was boosted by FIFA World Cup-related sales last year.
Reebok brand revenues Reebok grew 3% on a currency-neutral basis in the second quarter, with a double-digit improvement in direct-to-consumer revenues, especially in e-commerce where sales jumped 37%.
Sales increased in most market segments, with the combined currency-neutral sales of the Adidas and Reebok brands up 12% in Emerging Markets and 8% in AsiaPacific, the latter driven by 14% growth in China. Revenues in North America rose 6%, reflecting a 5% increase at brand Adidas and 10% growth for Reebok. Sales in Latin America were up 5%, but a flat year-on-year performance was seen in Europe. Sales in Russia/CIS fell 4% due to difficult comparisons with last year’s 2018 FIFA World Cup.
“We delivered another successful quarter,” says Adidas CEO Kasper Rorsted. “Sales in our strategic growth areas Greater China and e-commerce continued to increase at a double-digit rate – and so did our bottom line.”
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By GlobalDataFor 2019, the company continues to expect sales to increase at a rate of between 5% and 8% on a currency-neutral basis. Meanwhile, net income from continuing operations is seen increasing to between EUR1.88bn and EUR1.95bn, reflecting an increase of between 10% and 14% compared to last year’s EUR1.71bn.
As announced in March, Adidas is experiencing a strong increase in demand for mid-priced apparel, which it has been struggling to meet due to supply chain shortages.
As Rorsted reiterated on a call with analysts today (8 August), options to fill this supply gap have weighed on the business in a number of ways.
“When you go out and ask for more capacity, most of the capacity is already used, so the way you could [access] capacity in the short-term is through overtime or through very “expensive idle capacity” where there’s very little. The second part is the cost associated with it has been the subsequent consequence of airfreight.”
He adds that while supply chain constraints are also expected in the third quarter, “these will be more or less sorted out by the fourth and will have no impact next year. You should assume for the capacity we have next year is very close to normalised rates.”
