Shares in Adidas AG ADS, -5.68% fell in early trade Friday after the German sporting-goods company warned of a hit to full-year profitability as sales in China continue to be dragged by pandemic-related lockdowns.
At 0818GMT, shares traded 5.8% lower at EUR177.30.
In the first quarter, Adidas booked a 3% decline in sales at constant currency to 5.30 billion euros ($5.59 billion). Growth in the company’s Western markets was offset by a 35% plunge in Greater China, where a challenging market environment is exacerbated by pandemic-related lockdowns, Adidas said.
Operating profit meanwhile fell to EUR437 million in the quarter from EUR704 million previously, on a margin that contracted by more than 5 percentage points to 8.2%.
For the full year, Adidas said it no longer expects growth in its gross and operating margins, as previously targeted. The company did however back its targets for growth in sales and net profit for the year, albeit at the lower end of guided ranges.
The cut in profitability guidance comes as sales in Greater China are expected to fall significantly in 2022 compared with the previous year, Adidas said. The company had previously said it was aiming to return to organic growth in the market this year.
First-quarter results came in ahead of expectations but these were low to begin with, Baader Helvea analyst Volker Bosse said in a research note following the print. The company’s 2022 sales target meanwhile looks optimistic given the rising macro-economic headwinds, he added.
Consensus estimates for operating profit are likely to take a hit from the margin warning, Stifel’s Cedric Lecasble said in a note. The new outlook could see a cut of some 12% to existing consensus, Lecasble said.
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