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Adidas shares fall as supply chain problems slow growth

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Adidas shares fall as supply chain problems slow growth
FILE PHOTO: General view of a match ball with Adidas logo at the Euro 2016 semi final in Lyon, France REUTERS/Carl Recine/File Photo   -   Copyright  Reuters Staff(Reuters)
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HERZOGENAURACH, Germany (Reuters) – Adidas expects supply chain issues to dent sales growth in the first half of the year, particularly in North America, but said it hopes to see off a challenge from Nike in Europe and return to growth in the region.

Shares in the German sportswear brand, up 22 percent in the last year, were down 5.1 percent by 0855 GMT, falling to the bottom of the Stoxx 600 index, while local rival Puma was also down 0.5 percent.

Nike has been regaining ground, helped by a steady stream of new product launches and a strong showing by Nike-sponsored teams at the soccer World Cup, after several years when Adidas ate into its home market of North America.

Adidas said currency-neutral sales growth would slow to between 5 and 8 percent in 2019, from 8 percent in 2018, with supply issues accounting for a 1-2 percent fall as it struggles to meet strong demand for mid-priced apparel.

In contrast, Nike has forecast sales growth for 2019 approaching low double digits, and Puma a currency-adjusted 10 percent.

“It is a demand problem,” Chief Executive Kasper Rorsted told CNBC, noting that Adidas had doubled the size of its business in North America in the last three years.

Adidas produces 457 pieces of apparel a year, sourcing most of them from Cambodia, China and Vietnam. Rorsted said the shortages had nothing to do with U.S. trade tensions with China.

The company expects sales growth of just 3-4 percent in the first half of the year, speeding up in the second half as it ramps up supplies by reallocating factory capacity and prioritising the U.S. market.

Last month, Adidas appointed Martin Shankland as new global operations head to run its supply chain, replacing Gil Steyaert, who had only been in the role for just over a year.


Adidas said it should reach an operating profit margin of between 11.3 percent and 11.5 percent in 2019, up from 10.8 percent in 2018, with the return of the Reebok brand to profit helping it hit a target originally set for 2020 a year early.

Fourth-quarter sales rose by a currency-adjusted 5 percent to 5.234 billion euros (£4.5 billion), versus average analyst forecasts for 5.2 billion, while attributable net profit came in at 108 million, versus consensus for 88 million.

Sales rose 13 percent in greater China and 9 percent in North America, but fell 6 percent in Europe.

Adidas said it expected to revive growth in Europe in the course of 2019, forecasting a slight increase in currency-neutral revenues for the region.

Rorsted said that Adidas had relied too much in Europe on a short-term trend for fashion shoes, like its retro Stan Smith and Superstar, and not enough on sports performance gear, which it hopes to revive with sponsorship deals like the one it struck with English soccer side Arsenal.

Adidas saw strong growth in “sport inspired” styles and in training and running in the quarter, but a steep decline in soccer, where it benefited a year earlier from sales of team jerseys in the run-up to the World Cup.

(Reporting by Emma Thomasson; Editing by Kirsten Donovan and Keith Weir)

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