Adidas bucks German gloom with profit growth
Sporting-goods company beats analysts’ expectations with robust profit growth
BERLIN—Germany’s Adidas AG reported higher quarterly earnings on strong sales in China and predicted continued growth in the second half, but warned that a protracted trade and currency war could derail the global economy and hurt business.
Retailers such as Adidas have continued to benefit from strong sales in China, and many that produce goods there remain insulated from trade row with the U.S. But that could change if the conflict deepens and infects the global economy.
“Having the two biggest economies in the world right now at odds with each other has a negative impact on both economies,” Adidas Chief Executive Kasper Rorsted told reporters on a conference call on Thursday. “But if we have a currency war that will be a situation where everyone loses.”
Despite publishing secondquarter earnings that beat analysts’ forecasts, investors were disappointed with weak global sales growth and shares fell more than 2% in early trading.
Mr. Rorsted said he expected the company to have a “milestone year” on strong growth in China, having stemmed falling sales in Europe and turned around its long-ailing Reebok brand.
Adidas said net profit in the three months to the end of June totaled 531 million euros ($595 million U.S.), up 34% from a year earlier. Sales rose 4.7% to 5.5 billion euros. Analysts had forecast net profit of 464.7 million euros and sales of 5.54 billion euros. Growth in revenue was driven by China, the mainstay Adidas and Reebok brands, and e-commerce. But revenue was damped by a decrease in sales of soccer products, which were up sharply last year because of the FIFA World Cup.
Mr. Rorsted attributed the strong earnings to lower taxes, positive foreign-exchange effects, and the impact of growth in China and improvement in Europe, where the company had been losing ground. He said bottlenecks caused by supply-chain issues in the U.S. would be resolved by the end of the year, helping to spur growth in the U.S. market next year.
China was by far the biggest driver of Adidas’s revenue growth in the second quarter. Sales in China rose 14% from a year earlier. Rival Nike Inc., whose business year ended on May 31, said its sales in China were up 16% in its fiscal fourth quarter. The upbeat report by Adidas is a rare bright spot in Germany, where many of the country’s biggest companies have reported disappointing earnings, hit by falling demand in the global auto industry, the U.S.China trade war, and a number of criminal investigations and lawsuits.
Adidas’s sales on a currency-neutral basis grew in most regional markets, posting double-digit growth in China and other emerging markets. Sales in North America rose 6%, driven by growth in Reebok brand products, and were up 5% in Latin America. The company continued to struggle in Russia, where sales declined 4% in the quarter.