Adidas shoes go unsold as demand falters, hitting profits

Adidas AG has warned that unsold stock is piling up as consumer demand weakens in China and Western markets, prompting another profit warning from the sneaker maker.

The German company lowered its operating margin forecast this year to 4% from 7% and also reduced its sales forecast. Shares of the company fell 8.5% to a six-year low in Frankfurt on Friday morning. Rival Puma SE lost up to 4.9pc.

The warning continues a string of bad news from Adidas as CEO Kasper Rorsted prepares to step down in 2023 after a tumultuous six-year tenure. The cobbler struggled to come up with fashionable products under Rorsted’s watch and faced a series of crises. Earlier this month, Adidas put its alliance with Kanye West, called Yeezy, under scrutiny amid growing acrimony and erratic behavior from the hip-hop icon and designer.

Adidas said the gloomier outlook – its second profit warning in three months – reflects worsening store traffic trends in Greater China and slowing demand in Western markets since September. This will likely result in excess inventory that will need to be refreshed.

Adidas had already flagged weakness in China in its July warning. The country was once the brand’s biggest growth driver, but consumer boycotts and Covid restrictions have weighed on sales. Soaring inflation in Western markets has reduced consumers’ purchasing power.

Full-year revenue will grow at a mid-single-digit rate rather than a mid-to-high single-digit rate, Adidas said.

The news raises concerns about Adidas’ ability to execute, Bloomberg Intelligence analyst Poonam Goyal said in a note.

Inventory backlogs are weighing on the entire industry. Shares of Nike Inc. fell last month after a glut of unwanted merchandise eroded the rival US sportswear giant’s profitability.

The company said profits would be eroded by about 500 million euros ($488 million) of one-time costs related to issues such as the closure of its operations in Russia.

It is also implementing an efficiency program that should offset 500 million euros in higher costs next year and add around 200 million euros in profits. The measures will lead to a charge of 50 million euros in the fourth quarter of this year.

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