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November 10, 2021updated 16 Feb 2022 9:05am

Adidas hails Q3 result despite EUR600m sales drag

German sportswear giant Adidas said it performed well in a challenging environment during the third quarter, despite Covid and supply chain disruptions impacting revenue growth by around EUR600m (US$639.5m).

By Beth Wright

For the three months ended 30 September, currency-neutral sales amounted to EUR5.75bn, up 3.4% from EUR5.56bn in the prior-year period.

In total, Adidas said the challenging market environment in Greater China, extensive Covid-related lockdowns in Asia-Pacific as well as industry-wide supply chain disruptions reduced revenue growth by around EUR600m in the period.

From a channel perspective, the company’s top-line development was driven by growth in its own direct-to-consumer channel where currency-neutral sales grew 5% year-on-year, reflecting an increase of nearly 20% compared to the 2019 level. Adidas noted its e-commerce revenues experienced a significant increase in full-price sales during the quarter and grew 8% year-on-year. This reflects an increase of 64% compared to 2019, reflecting the exceptionally high growth in the prior-year period.

In Euro terms, Adidas revenues also grew 3% in the third quarter to EUR5.75bn.

From a regional perspective, revenues in EMEA and North America both grew 9% currency-neutral during the quarter despite the negative impact from significantly longer lead times due to ongoing industry-wide shipping and handling constraints. In addition, revenues in Latin America grew 55%. At the same time, sales in AsiaPacific declined 8% reflecting the impact of extensive lockdowns in the region. In Greater China, the geopolitical situation, the resurgence of Covid-related restrictions as well as natural disasters weighed on the company’s top-line performance and led to a revenue decline of 15%.

Net income from continuing operations, meanwhile, was down 10.4% on last year to EUR479m from EUR535m.

Gross margin in the third quarter declined by 0.2 percentage points to 50.1% as the positive effects from significantly higher full-price sales were offset by the negative impact from currency fluctuations, significantly higher supply chain costs as well as a less favourable market mix.

“Adidas performed well in an environment characterised by severe challenges on both the supply and demand side,” said CEO Kasper Rorsted. “As a consequence of successful product launches we are experiencing strong top-line momentum in all markets that operate without major disruption. Double-digit growth in our direct-to-consumer businesses in EMEA, North America and Latin America is a testament to the strong consumer demand for our products. At the same time, we are navigating through the current world-wide supply chain constraints. Despite all challenges, we are on track to delivering a successful first year within our new strategic cycle.”

Adidas confirmed its top- and bottom-line outlook for 2021 despite what it called “several external factors continuing to weigh on industry-wide demand and supply.”

While the company continues to expect currency-neutral revenues to increase by a rate of up to 20%, growth is now anticipated to come in at the lower end of this range due to the longer-than-expected sourcing disruptions as well as the challenging market environment in China. Consequently, both operating margin and net income from continuing operations are also forecasted to reach the lower end of the previously communicated ranges of between 9.5-10% (operating margin) and between EUR1.4-EUR1.5bn (net income from continuing operations).

At the same time, due to significantly higher supply chain costs as well as a less favourable market mix, the gross margin is now expected to increase to a level between 50.5-51% in 2021 (previously: around 52%).

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