Adidas sees impact from supply-chain snags carrying into 2022

Adidas sees impact from supply-chain snags carrying into 2022
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MUNICH (Nov 10): Adidas AG predicted costly disruptions from supply-chain snags will carry into 2022, after factory closures in Vietnam and consumer boycotts in China hindered efforts to roll out new sneakers and sportswear in the third quarter.

The hurdles will likely reduce revenue growth by some 400 million euros (US$463 million) in the fourth quarter and 600 million euros in the first three months of next year, Chief Financial Officer Harm Ohlmeyer told journalists on Wednesday.

The shares fell as much as 6.9% in Germany, the biggest intraday decline in a year, after the sneaker-maker also reported third-quarter earnings that missed estimates and lowered its gross margin forecast for this year.

Adidas is grappling with “severe challenges” on both the supply and demand front, Chief Executive Officer Kasper Rorsted said in a statement.

The results contrast with more upbeat appraisals from rivals Nike Inc and Puma SE. The supply-chain disruptions are complicating Adidas’s efforts to implement a new five-year strategy focused on e-commerce, sustainable materials and products for women. Sales growth took a 600 million-euro hit last quarter.

Most of the revenue that’s been lost has come from what Rorsted referred to as the “bread and butter business, the day-to-day shoes” that get produced in massive volumes.

Among new offerings, the most significant hit has been to the rollout of its NMD-S1 shoes.

“We probably got delayed four to five months,” Rorsted said on the call with reporters. “We’ll scale next year.”

Product ‘Scarcities’

The company is sticking to a target for 8% to 10% growth in 2022, he said.

“We still expect to see Adidas products below the Christmas tree,” Rorsted said. “But the earlier you shop, the better.” By year end, there will be product scarcities, he added.

Adidas saw sales drop by 8% in Asia and 15% in Greater China in the third quarter. The company predicted its factories in Vietnam, which have been hit by Covid-19 shutdowns, will get back to full production by year-end from about 70% currently.

“There is clearly a hole in the product availability which is likely to have a negative impact not only in the fourth quarter, but also the first quarter of 2022,” Jorg Philipp Frey of Warburg said in a note.

Ohlmeyer said the “boycott situation” in China is seeing steady improvement, and Adidas still views the country as a strategic area for growth. Some consumers in the country have been shunning Western brands since March for taking a stance against forced labour in the Xinjiang region. Adidas had supported the Better Cotton Initiative in a decision to no longer certify cotton that comes from the region.