Adidas has stated that factory closures in Vietnam due to COVID-19 and consumer boycotts in China are hindering efforts to launch new sports shoes and apparel. The German company announced on Wednesday that a mix of factors led to a revenue growth decline of about 600 million euros ($695 million) in the third quarter. Its shares fell by 5.3% in early trading.
The company's CEO, Kasper Rorsted, indicated in a statement that "Adidas is facing serious challenges in terms of supply and demand." Despite rising shipping costs and product delivery delays, Adidas managed to increase sales by about 9% in Europe and North America during this quarter. However, the situation was more challenging in Asia, where sales across the region fell by 8% and business in China decreased by 15%.
Adidas' results contrast with the optimistic performance of competitors Nike and Puma, as supply chain obstacles complicate Adidas' efforts to implement a new five-year strategy focused on e-commerce and sustainable materials and products for women. The German sports company has lowered its gross margin target for this year.
Adidas calmed jittery investors twice in recent months, first with news of the sale of Reebok in a $2.5 billion deal, and again last month with the announcement of a new plan to repurchase $520 million in shares. The problems in China are likely to raise tough questions from investors, as new COVID-19 lockdowns have exacerbated an already weakened demand impacted by this year's boycotts. In the third quarter, both sales and operating profits fell short of analysts' estimates.
Some consumers in China have been avoiding Western brands since March after they took a stance against forced labor in the Xinjiang region. Adidas supported the Better Cotton initiative in its decision against certifying cotton from the area.
