ADS Adidas AG

By Joshua Kirby

Adidas AG on Tuesday again cut its guidance for the full year as recovery in the key Greater China market continues to be dragged by pandemic-related restrictions, but said that second-quarter revenue rose ahead of expectations thanks to good performance elsewhere.

Given the continued widespread restrictions, the German sportswear giant now expects Greater China sales to decline at a double-digit rate for the rest of 2022, it said. It had previously expected second-half revenue to be flat on year in the market.

As a result, Adidas now expects overall organic sales growth for 2022 to be in the mid- to high-single digits. It had previously guided to meet the lower end of a 11%-13% range.

The resulting less favorable geographic mix and measures to clear inventory in the market will drag the company's gross margin to a level of around 49% for the year, from a previous forecast of around 50.7%, it said. Consequently, the operating margin is expected to stand at around 7% for 2022, compared with the roughly 9.4% previously forecast, Adidas said.

Net income from continuing operations will as such reach around 1.3 billion euros ($1.33 billion), Adidas said. The company had previously guided to meet the lower end of a EUR1.8 billion-EUR1.9 billion range.

The profit warning is the second time in less than three months that Adidas has cut guidance as a result of sluggish recovery in China. In May, the company said it was no longer aiming to return to organic growth in the market in 2022 and that it consequently no longer expected growth in its gross and operating margins for the year.

In the second quarter, the company booked a 4% organic rise in revenue to EUR5.56 billion, according to preliminary figures. The growth was driven by double-digit rises in North and Latin America, as well as in the EMEA region, stripping out a negative result in Russia and former Soviet states. With declining margins, net profit from recurring operations fell slightly to EUR360 million in the quarter, the company said.

Adidas still expects double-digit revenue growth for the company as a whole in the second half of the year, it said, pointing to a strong product pipeline, major sporting events and easier comparable bases ahead.

Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby

(END) Dow Jones Newswires

July 26, 2022 13:04 ET (17:04 GMT)

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