Adidas fears 'everybody will lose' in US-China currency war

Frankfurt am Main

GERMAN sportswear maker Adidas warned on Thursday that "everybody will lose" if a currency war ignites between China, the United States and other countries, while reporting continued strong earnings in its second quarter.

American tariffs on Chinese goods - with another US$300 billion in imports targeted by President Donald Trump last week - are less harmful to the brand with the three stripes than a potential exchange rate battle, chief executive Kasper Rorsted said.

"What is much more severe is that we start to have a currency war between China, the US and the rest of the world, that's going to be a situation where everybody will lose," he told journalists.

Since the tariffs announcement, Beijing has allowed the yuan to sink below a seven-to-the-dollar lower bound its central bank had previously defended, prompting the US Treasury Department to cry currency manipulation.

"Currency war will over time slow the economy down," Mr Rorsted predicted, as well as imposing a "severe impact" on global businesses like the shoes and sportswear maker.

Weaker exchange rates against the euro would batter Adidas' sales and profitability through the conversion into its home currency, as the US and Chinese markets combined account for 45 percent of revenue.

For now, the Bavarian group says its strong growth continued into Q2, seeing its biggest problems in overcoming bottlenecks in its supply chain.

Net profit at the Bavarian group added 34 per cent over April-June 2018, reaching 531 million euros (S$823 million) to beat analysts' forecasts.

Revenues grew by 4.7 per cent to 5.5 billion euros, making for an operating profit up 8.6 per cent at 643 million euros.

Sales at the flagship Adidas brand were up 4 per cent thanks to its "sport inspired" streetwear, while its "performance" sportswear fell back in comparison with 2018's football World Cup-powered revenues.

Long-struggling American subsidiary Reebok returned to growth in sales in Q2, adding 3 per cent thanks to its "classics" line. The unit also returned to profitability, Mr Rorsted said.

Adidas' online direct sales business grew 37 per cent, while in its different regions only China saw double-digit growth. North America picked up the pace of sales expansion as the group managed to overcome supply bottlenecks for in-demand products, while sales in Europe held steady.

Adidas' closely-watched gross margin increased 1.2 percentage points, to 53.5 per cent, a slower pace than in the previous quarter.

"Higher air freight costs to mitigate the supply chain shortages and a less-favourable pricing mix" weighed on profitability, the group said.

Looking ahead, the group stuck to its 2019 forecasts for sales growth between 5 and 8 per cent, adjusted for currency effects. AFP