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Adidas' Profits Cratered in the First Quarter, and Q2 Could Be Even Worse

By Keith Noonan – Apr 27, 2020 at 2:29PM

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The company is seeing recovery in some key markets, but its next quarterly report will likely bring a steep sales decline and an operating loss.

German shoemaker adidas (ADDYY -3.46%) reported first-quarter results before the market opened on Monday, and the negative impact from the novel coronavirus shutting down retail was painfully apparent. Sales fell 19% year over year to 4.75 billion euros ($5.14 billion), and earnings per share from continuing operations dipped 96% year over year to land at 0.13 euros. 

Revenue and profit erosion will likely be significantly worse in the second quarter. Prior to expanded retail shutdowns stemming from the pandemic, sales in regions outside of the company's Asia Pacific geographic segment were up 8% year over year across the first two months of 2020, but second-quarter performance will reflect the expanded store closures.

An Adidas shoe on a box in a storage room.

Image source: adidas.

What's next for adidas? 

The company opted not to give full-year guidance due to uncertainty created by the novel coronavirus pandemic, but it expects to post an operating loss in the second quarter and predicts sales will fall more than 40% year over year in the period. adidas indicated that it's seeing sales recovery in China (its biggest geographic market) in the first few weeks of April, but performance in many markets where stores have yet to reopen remains dependent on online retail. 

The company's e-commerce sales climbed 35% on a currency-adjusted basis in the first quarter, and online sales were up 55% in March alone. However, strong momentum for e-commerce wasn't enough to offset widespread closures of brick-and-mortar stores. The company reported that more than 70% of its global stores remain shut down. Management says it sees plenty of room for long-term growth and believes adidas is well positioned to benefit from increasing consumer interest in health and fitness, but the company may be faced with a challenging economic climate even as more stores reopen.  

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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