Adidas shoes going unsold as demand weakens, hitting profit

Adidas AG warned that unsold goods are piling up as consumer demand weakens across China and western markets, prompting a fresh profit warning from the sneaker maker. 

The German company lowered its forecast for this year’s operating margin to 4% from 7% and also cut its sales guidance. The company’s shares fell as much as 8.5% to a six-year low in Frankfurt Friday morning. Rival Puma SE dropped as much as 4.9%.

The warning extends a run of bad news from Adidas as Chief Executive Officer Kasper Rorsted prepares to step down in 2023 after a tumultuous six-year tenure. The shoemaker has struggled to come up with buzzy products under Rorsted’s watch and has faced a string of crises. Earlier this month, Adidas put its alliance with Kanye West, called Yeezy, under review amid growing acrimony and erratic behavior from the hip-hop icon and designer.

Adidas said the gloomier outlook -- its second profit warning in three months -- reflects a deterioration in store traffic trends in Greater China and a slowdown in demand in western markets since September. That’s likely to lead to an overhang of inventory that will have to be discounted. 

Adidas had already flagged weakness in China in its July warning. The country was once the brand’s biggest growth engine, but consumer boycotts and Covid restrictions have dented sales. Surging inflation across western markets has crimped consumer spending power.

Full-year revenue will grow at a mid-single-digit rather than mid- to high-single-digit rate, Adidas said. 

The news raises concerns about Adidas’s ability to execute, Bloomberg Intelligence analyst Poonam Goyal said in a note.

Inventory backlogs have been weighing across the industry. Last month, Nike Inc. shares tumbled after a glut of unwanted merchandise eroded the rival US sportswear giant’s profitability.

The company said profit will be eroded by about €500 million ($488 million) of one-off costs related to issues such as the winding down of its operations in Russia. 

It’s also instituting an efficiency program that should compensate for €500 million of higher costs next year and also add about €200 million to profit. The measures will entail a charge of €50 million in the fourth quarter of this year.