Shares in German sportswear giant Adidas (ADS) fell 6.5% to €279.40 after it said it expected sales to decline in the fourth quarter of this year as coronavirus-related lockdowns return.
In its third quarter results, Frankfurt-listed Adidas reported a 3% fall in currency-neutral sales to €5.96 billion, while operating profit fell 12% to €794 million, though this was ahead of consensus forecasts of €5.91 billion and €723 million respectively.
Adidas put its better than expected operating profit figure down to lower physical marketing and point-of-sale expenses, as it tries to keep a handle on costs during the pandemic.
The company’s gross margin stood at 50% in the third quarter, down from 52.1% in the same period a year ago, as Adidas said a more favourable channel mix driven by the overproportionate growth of the direct-to-consumer business was offset by negative currency developments during the quarter and continued promotional activity.
SALES TO DECLINE DESPITE CHINA GROWTH
Adidas anticipates a return to growth in China, but said overall the company’s top line is predicted to develop similarly in Q4 as it did in Q3, implying a low- to mid-single-digit currency-neutral revenue decline.
Adidas CEO Kasper Rorsted said, ‘While at the beginning of the quarter we were on track for growth in Q4, a worsening of the pandemic in many regions of the world is again requiring our patience and support.’
But he added ‘this is not taking us by surprise’ and said the pandemic is accelerating long-term industry growth drivers such as health and wellbeing, athleisure and digitisation.
ANALYST VIEW
Despite Adidas’ share price fall today, Quilter Cheviot head of equity research Chris Beckett said it’s important to put it in context over the stock’s performance in the past week - up 12%.
He said, ‘Guidance for Q4 remains cautions due to a second wave of lockdowns with 7% of stores currently closed and retail footfall impacted.
‘However, after yesterday’s news of a vaccine breakthrough, investors are unlikely to focus on Q4 expectations. It is the timing and probability of a return to normal trading conditions that matters more - the stock is up 12% in the last week.’
