Adidas sees $1.1 billion coronavirus hit to China sales,
Puma warns on profit
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[March 11, 2020] By
Emma Thomasson
BERLIN (Reuters) - German sportswear makers
Adidas <ADSGn.DE> and Puma <PUMG.DE> warned on Wednesday of a major
decline in sales in China due to the coronavirus and said while there
were early signs of improvement there the impact had spread to other
markets.
Shares in Adidas and Puma, already pummelled in the last few weeks, were
down 6% and 4.4% respectively at 0951 GMT. Shares in market leader Nike
<NKE.N>, which also warned last month of an impact from the virus, were
down 3%.
Adidas said it expected first-quarter sales to drop by up to 1 billion
euros ($1.1 billion) in greater China and operating profit to decline by
400-500 million euros.
Adidas and Puma make almost a third of their sales in Asia, which has
been a major growth market for sporting goods in recent years and a
driver of profits. The region is also the main sourcing hub, with China
a major producer for both firms.
Adidas said it expected group first-quarter sales to fall more than 10%,
including the China hit and a drop of about 100 million euros in Japan
and South Korea, and assuming the rest of the world grows at a
currency-neutral 6% to 8%.
"The virus hit looks worse than feared," Jefferies analyst James Grzinic
wrote in a note on Adidas.
Puma said it no longer expected its business would return to normal
soon, despite encouraging signs coming out of China, adding it was
abandoning the 2020 guidance it gave on Feb. 19 that had assumed the
crisis would be short-lived.
"Given the duration of the situation in China, the negative impact in
other Asian countries and now also the spread to Europe and the U.S., we
unfortunately have to conclude that a short-term normalization will not
occur," it said.
Since emerging in China late last year, the new coronavirus has spread
around the world, infecting around 120,000 people, killing nearly 4,300
and sending markets into a tailspin.
SPORTS EVENTS DISRUPTED
Sporting events around the world have been cancelled, postponed or
played without spectators, with the virus's spread raising questions
about the viability of the upcoming Olympic Games in Japan and Euro 2020
soccer championship.
While the Olympics is not usually a major driver of sales for the
sporting goods industry, Euro 2020 is more important for sales of
replica jerseys and balls.
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Adidas CEO Kasper Rorsted attends the celebrations for German sports
apparel maker Adidas' 70th anniversary at the company's headquarters
in Herzogenaurach, Germany, August 9, 2019. REUTERS/Andreas Gebert
If both events are postponed, Adidas could lose up to 70 million euros of sales,
Chief Executive Kasper Rorsted told journalists, but added he was upbeat about
the underlying health of the business and was not planning any job cuts.
Adidas warned last month its business in the greater China area had dropped by
about 85% year-on-year in the period since China's Lunar New Year on Jan. 25.
On Wednesday, it said it had started to see a "slight improvement" in business
activity in greater China, with about half of its 12,000 stores in the country
open again, but shopper traffic was now deteriorating in Japan, South Korea and
Europe.
Puma said Asian markets such as Singapore, Malaysia, Japan and South Korea,
where Chinese tourists often travel to shop, were recording a big fall in sales,
and it had seen a significant decline in shopper traffic across Europe.
In greater China, Adidas cancelled all shipments to wholesale partners in
February and it said it planned to clear excess stock through its own channels
in the rest of 2020, although Rorsted does not expect much catch-up buying.
Adidas and Puma said most of their factories in China were operating again. Puma
said its outbound logistics from China were also mostly in operation, so its
global supply chain was only seeing some minor delays.
Excluding the impact from the virus, Adidas forecast currency-neutral sales to
increase by between 6% and 8% for the full year and for its operating margin to
rise by between 10.5% and 11.8%.
Fourth-quarter sales - covering a period before the coronavirus took hold - rose
a currency-adjusted 10% to 5.84 billion euros, while operating profit came in at
245 million euros, missing analysts' mean forecasts.
Currency-neutral sales grew 18% in greater China, 10% in North America and 14%
in Europe, the latter a big rebound from declines in the first half of 2019
after the firm took steps to reduce its reliance on its Originals fashion line.
(Reporting by Emma Thomasson; Editing by Andrew Cawthorne and Mark Potter)
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