March 11, 2020 / 7:45 AM / 23 days ago

Adidas warns of big coronavirus hit to China sales

BERLIN (Reuters) - German sportswear maker Adidas expects first-quarter sales to drop by up to 1 billion euros ($1.14 billion) in greater China due to the coronavirus and while business is picking up there it is now being hit in Japan and South Korea.

China accounted for 20% of Adidas sales in 2018. It sells its products from about 12,000 stores in China, most franchises plus fewer than 500 of its own stores. Almost a fifth of its shoes and apparel are produced in the country.

Adidas warned last month that its business in the greater China area had dropped by about 85% year on year in the period since Chinese New Year on Jan. 25.

On Wednesday, it said it had started to see a “slight improvement” in business activity in greater China, while shopper traffic was now deteriorating in Japan and South Korea, and the impact on other countries was uncertain.

In greater China, it cancelled all shipments to wholesale partners in February and it said it plans to clear excess inventory through its own channels during the rest of the year.

It expects sales in greater China in the first quarter to fall by between 800 million and 1 billion euros and operating profit to decline by between 400 million and 500 million.

While its supply chain has faced disruptions, Adidas most of its factories in China were operating again and its global sourcing activities had not been hit so far.

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%, but said the outlook did not include any impact from the coronavirus outbreak.

Adidas said it remained “fully confident” about its future growth prospects due to its strong positioning in an attractive industry despite the temporary challenges posed by the coronavirus outbreak.

FILE PHOTO: A woman wearing a face mask walks past a banner advertising new Adidas store, as the country is hit by an outbreak of the novel coronavirus, in Beijing, China February 20, 2020. REUTERS/Tingshu Wang/File Photo

Fourth-quarter sales rose a currency-adjusted 10% to 5.84 billion euros, while operating profit came in at 245 million euros, missing analysts’ mean forecasts of 5.88 billion and 288 million euros, respectively.

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.

($1 = 0.8808 euros)

Reporting by Emma Thomasson; editing by Thomas Seythal and Douglas Busvine

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