Despite Slow Growth in Q4, Adidas Expects a Positive 2022
Despite sales knocked back by the pandemic last year, and now disruptions due to a war in Ukraine, Adidas executives insisted that 2022 would still be a winning year.
The activewear sector was one of the parts of the apparel industry least impacted by the health crisis of the last two years, Adidas chief executive officer Kasper Rorsted pointed out during an online press conference Wednesday to discuss its fourth-quarter and full-year results.
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After ratcheting its guidance down throughout last year, Adidas still had to settle for growth slightly lower than its own predictions for 2021.
Net sales over the course of 2021 grew 16 percent, currency neutral, to bring in 21.23 billion euros. The company had originally predicted between 17 and 18 percent growth.
The company’s sales revenues have not yet returned to pre-pandemic levels. In 2019, the last “normal” year before the COVID-19 health crisis began, Adidas made almost 24 billion euros.
In the fourth quarter, sales fell 3 percent in currency neutral terms to 5.14 billion euros.
While retail in most parts of the world is now more stable and health-related lockdowns have largely ended, the Russian invasion of Ukraine is the next issue that has the potential to put a dent in sales.
The company ceased operations in Russia this week, it said, and was doing its best to take care of 7,000 staff in both Russia and Ukraine. Staff were still being paid, Adidas noted.
The company has yet to see impact on consumer confidence, Rorsted said.
“Sport is something people continue to do on a daily basis,” he explained. “It’s something people use as a way of de-stressing. So we continue to think the sporting goods industry is a very good industry to be in.”
The German sportswear giant predicts growth of between 11 and 13 percent this year and noted that this guidance took into account the closure of Russian operations. Losses from business there might amount to 250 million euros and account for around 1 percentage point of growth, the company stated.
The brand’s guidance for 2022 is more in line with Adidas’ growth over the last five years before the pandemic started. Between 2015 and 2020, the sportswear company averaged around 13 percent growth annually.
Last year, Adidas’ issues included an ongoing consumer boycott of Western-made goods in China, pandemic-related lockdowns and the resulting supply-chain issues, the company explained. This likely shaved around 1.5 billion euros off revenue growth during the year, it suggested. That included a loss of about 400 million euros in the fourth quarter alone.
Adidas predicts that a hangover from the fourth quarter will continue to impact sales in the first quarter of this year and forecast a mid-single-digit decline for the first quarter, before speeding up to double-digit growth in the mid- to high-teens for the rest of the year.
Market analysts from JP Morgan, Baader Bank and the Royal Bank of Canada, among others, said that despite just missing its own guidance, Adidas’ results were much as expected. Analysts believed the company’s guidance and confidence in the sporting goods sector were also on target.
During the press conference, Rorsted explained the company’s strategy for 2022 when Adidas is to focus on increasing direct-to-consumer sales, through its own stores as well as digital channels. Last year, direct sales made up 38 percent of Adidas’ total revenues and the company aims to increase this to half of all sales by 2025.
Incentivizing membership to the brand’s shopping app was also a priority. Adidas added 240 million members in 2021, noting these people buy 50 percent more than other customers, Rorsted said.
Adidas is also trying to make further inroads into the premium sportswear segment, with ongoing collaborations with Fear of God designer Jerry Lorenzo on basketball-related clothing, and with brands like Prada and Gucci.
Adidas also had plans to “stabilize and reinvigorate” sales in China. Once one of its fastest-growing territories, fourth-quarter sales in China dropped 24.3 percent to 1.3 billion euros. The company recently appointed a new manager for the territory, with Adrian Siu, a former sales manager for Adidas Hong Kong, replacing Jason Thomas, who will return to Dubai, which is where he started with the company.
Over the whole year, Adidas sales in the Greater China territory grew 3 percent to hit 4.6 billion euros. In total, the Asia Pacific region brought in 6.78 billion euros.
In Europe, sales grew 24 percent during 2021 to bring the company 7.76 billion euros. This was helped by a successful fourth quarter, during which sales in the Europe, Middle East and Africa grew 15.2 percent to 1.83 billion euros.
In North America, revenues rose 16.6 percent to 5.1 billion euros over the year. This was despite a difficult fourth quarter, when sales fell 3.7 percent to 1.3 billion euros.
“Revenues in North America were most impacted by the supply shortages in the fourth quarter,” Adidas noted. Due to the pandemic, factories in Adidas’ main manufacturing base, Vietnam, were closed at the end of last year.
The company’s chief financial officer, Harm Ohlmeyer, explained how around a third of products would usually be in transit, with a further two-thirds available for sale. But in December 2021, around half of the products destined for North America were in transit and only half on hand.
EBIT rose 166.3 percent over the course of 2021 to 1.98 billion euros. This was despite a tough fourth quarter, which saw operating profit fall 70.9 percent to 66 million euros. The company explained this was due to higher marketing expenses and overhead costs.
Adidas’ operating profit still has not come back to pre-pandemic levels. In 2019, the company recorded operating profit of 2.66 billion euros.
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