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Despite an increase in sales, adidas’ operating profit declines in Q2

adidas is facing incongruent results from their western and Greater China markets. The company’s traditional market is thriving despite continued challenges in supply and demand. However, the impacts of Covid-19 and its resulting restrictions are dire for adidas’ business in Greater China.

adidas is maintaining strong momentum in western markets, resulting in a 4 percent growth in currency-neutral revenues. Its revenues increased by 10 percent to 5.596 billion EUR, compared to a flat currency-neutral revenue the year prior. A 5 percent increase in euro-based revenues was recorded at 10.897 billion EUR.

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Among the company’s growth categories, football, running, and outdoor all grew at double-digit rates. The company’s growth in the second quarter was driven by western markets, including EMEA and North America, despite the negative effects of last year’s Vietnam lockdowns. The loss of more than 100 million euros in revenue in Russia/CIS also impacted EMEA’s top-line development.

DTC and wholesale revenues both increased by more than 20 percent in North America during the quarter. Latin America’s revenues increased 37 percent, while Asia-Pacific’s growth returned. In spite of limited tourism activity in the region, currency-neutral revenues increased by 3 percent.

Source: adidas

In the three-month period, currency-neutral revenues declined 35 percent. The company’s currency-neutral revenue in its other markets combined, excluding Greater China, increased by 14 percent in the second quarter. As a result, the company reported a decline in operating profit to 392 million euros, reflecting a 7 percent operating margin. There was a 1.5 percentage point decline in the company’s gross margin to 50.3%.

Based on continuing operations, the company had a net income of 360 million euros, down from 387 million euros, and basic EPS of 1.88 euros. In the first half of the year, the company’s gross margin fell by 1.7 percentage points to 50.1%. In 2021, adidas generated EUR 1.248 billion in operating profits, resulting in a 7.6% operating margin.

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Due to a double-digit decline in Greater China, adidas now expects currency-neutral revenues for the company to grow at a mid- to high-single-digit rate in 2022. Considering the more challenging macroeconomic conditions, this adjusted guidance also accounts for a possible slowdown in consumer spending in markets during the second half of the year. As a result, EMEA growth is now projected to be in the low teens rather than mid-teens previously, while Asia-Pacific revenues are expected to rise by high-single-digit numbers.