By Joshua Kirby

 

Shares in Adidas AG lost ground in early trade Friday after the German sporting-goods company again cut financial guidance for the year, blaming major one-off costs and slowdown in Western markets that add to existing problems in China.

At 0810 GMT, shares traded 9% lower at EUR104.48. Smaller peer Puma fell 6% to EUR44.48.

Late Thursday, Adidas warned that it expects a big hit to its bottom line from one-off costs largely relating to its exit from operations in Russia. Net income from continuing operations should come in at some EUR500 million ($489.4 million) for the year, against a previous target of around EUR1.3 billion, the company said.

The company also expects lower revenue for the year, with growth now seen in the mid-single digits compared with a previous expectation for mid-to-high single digit growth. Adidas pointed to slowing consumer demand in major Western markets, leading to stock build-up that will drag its margins, now also seen lower for the year. Inventory levels spiked by 63% as of the end of the third quarter from a year earlier, Adidas said.

U.S. rival Nike Inc. last month reported a similar surge in inventory, warning of a squeeze on profit margins from resulting discounts and other clearing activity necessary to sell off excess stock.

The warning is Adidas's third this year. The company slashed full-year targets in May and again in July, as sales struggled to recover in China amid pandemic-related lockdowns and store closures that have strangled traffic and demand in the key market.

"The speed with which Adidas's previously lowered guidance has crumbled under the scrutiny of a more stressed consumer will unnerve investors," analysts at Jefferies said after the news. Warnings from sportswear's two biggest companies, Adidas and Nike, also bode ominously for Germany's Puma, they said in a note.

Adidas's updated guidance is moreover far from certain, Citi's Thomas Chauvet and Lorenzo Bracco said in a note. Assumptions for fourth-quarter revenue will rely on a boost from the soccer World Cup set to kick off in Qatar next month, they said.

But the new guidance could be the reality dose that Adidas needs, analyst Piral Dadhania at RBC Capital Markets said in a note. If 2023 consensus estimates are adjusted accordingly, that could leave the company well-placed to deliver in line with expectations in the context of an attractive valuation, Dadhania said.

 

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

 

(END) Dow Jones Newswires

October 21, 2022 04:27 ET (08:27 GMT)

Copyright (c) 2022 Dow Jones & Company, Inc.
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