Adidas has grown for five consecutive years now, with net sales in 2019 rising to 23.64 billion euros, an increase of 6 percent from 21.91 billion euros in 2018. Net income rose 12 percent to 1.91 billion euros.
“The best year in our history,” chief executive officer Kasper Rorsted declared during a press conference live-streamed from the company’s base in Herzogenaurach, Germany.
As Rorsted had hinted previously, the German activewear giant did very well in the fourth quarter, with double-digit increases in almost all markets underscoring a currency-neutral sales gain of 10 percent to 5.83 billion euros.
In a statement, the company predicted growth of between 6 and 8 percent for 2020, but said it had not considered the impact of COVID-19 when coming up with that guidance due to the fluidity of the situation.
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“The reason we are not including it is because we don’t know what’s coming in the future,” Rorsted said. “We understand the interest but we have a company to run. We have an uncontrollable force in the marketplace and we are dealing with it as best we can.”
Thanks to the spread of COVID-19 in Greater China, where 85 percent of Adidas outlets were closed at the peak of the contagion, business has been reduced by more than 80 percent so far this year. There has also been a drop in sales in Japan and South Korea. Adidas said this added up to losses of around 100 million euros a week and the company expects to see sales in the territory decrease by between 900 million and 1.1 billion euros as a result.
This was why Adidas was pulling Chinese business out of calculations on 2020’s guidance, Rorsted explained. In the rest of the world, unaffected by the virus, it’s business as usual, with a focus on the existing business strategy. “Without belittling this, it’s a bit like if you translate business into football,” the ceo said. “We have had a great first half. The break we are having right now is longer than we would like. But the second half will also come. Fundamentals in the sporting goods industry are unchanged.”
There was also some cause for cautious optimism. “The company has started to experience a slight improvement in its Greater China business activity,” Adidas’ statement noted, “with stores and warehouses gradually opening and consumer traffic slowly picking up.”
“We have seen a slight acceleration in the March trading hours,” chief financial officer Harm Ohlmeyer confirmed, “but really nobody knows what the future will bring, how quickly it will recover or when things will be back to normal.”
An employee at Adidas’ German headquarters was recently diagnosed with COVID-19 and this has resulted in 15 other staff going into quarantine. Still, no major supply chain setbacks have been experienced — that is even though the company sources 23 percent of its products from China and has a warehouse in Italy.
Rorsted also addressed what would happen if two major sporting events in 2020 that the company had been looking to for increased sales — the Tokyo Olympics and the European soccer championships — were to be postponed. That would knock between 50 million and 70 million euros off its revenue, Ohlmeyer stated, adding that, given the company’s solid financial position, this would have a marginal impact.
“We have never been more solid,” he said. “That is why being a profitable company is massively important, because it gives you this freedom during difficult periods.
Analysts at the likes of Deutsche Bank, Goldman Sachs, Warburg Research and RBC Canada appreciated the fact that the company had achieved guidance for 2019. But they also mentioned the uncertainty presented by the ongoing health crisis and the market seemed to agree, driving Adidas shares down despite the positive financial results.
In 2019, a significant part of Adidas’ topline growth was driven by online customers, with these contributing significantly to an 18 percent rise in direct-to-consumer sales. Online sales grew 34 percent over 2019 and totaled 3 billion euros. Most of the growth came from Greater China. Direct-to-consumer sales now make up just over a third — 34 percent — of all of Adidas’ business.
Adidas’ EBITDA — earnings before interest, taxes, depreciation and amortization, often seen as a good indicator of a company’s profitability — also rose, going from 2.88 billion euros in 2018 to 3.84 billion in 2019. This equals a 33 percent increase.
Last year, Adidas saw increases in all territories, including in its difficult-but-important home market, Europe, which had been somewhat stagnant in the past. Currency-neutral sales for both Adidas and Reebok there rose 3 percent to 6.07 billion euros.
Despite supply chain problems during the year that have since been resolved, sales for both brands in North America rose 8 percent to hit 5.31 billion euros. In Asia-Pacific, currency-neutral sales went up 10 percent to 8.03 billion euros in 2019. Business in Greater China represents about two-thirds of that.
Reebok also returned to growth, with an increase in net sales of 2 percent to 1.74 billion euros. Reebok didn’t do so well in Europe, with a 2 percent fall, currency neutral, in net sales, to 471 million euros. In 2018, this was 480 million euros. But the brand did particularly well in North America, with 12 percent growth, currency neutral, in net sales there, going from 411 million euros in 2018 to 485 million in 2019; the last quarter saw Reebok’s revenues in North American grow 7 percent.
Footwear was Adidas’ biggest seller in 2019, bringing in net sales worth 13.52 billion euros, an increase of 4 percent, currency neutral, from 12.78 billion in 2018. Both the sports-inspired and sports performance categories grew equally. Apparel made up 8.96 billion euros of net sales, an increase of 7 percent, currency neutral, on 8.22 billion the previous year. Sports-inspired clothing made double-digit increases while sports performance grew in the high-single digits.