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Adidas warns of Covid-19 hit to Q1 sales in China

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Adidas says it is "fully confident" about its growth prospects, and that the virus outbreak is but a temporary challenge.

Berlin 

GERMAN sportswear maker Adidas expects first-quarter sales to drop by up to a billion euros (S$1.57 billion) in greater China due to the novel coronavirus, and while business is picking up there, it is now being hit in Japan and South Korea.

China accounted for 20 per cent of Adidas sales in 2018. It sells its products from about 12,000 stores across the country, mostly franchises and fewer than 500 of its own stores. Almost a fifth of its shoes and apparel are produced in the country.

Adidas warned last month that its business in greater China had dropped by about 85 per cent year on year in the period since Chinese New Year on Jan 25.

On Wednesday, it said it had started to see a "slight improvement" in business activity in greater China. Meanwhile, however, shopper traffic is deteriorating in Japan and South Korea; the impact on other countries is uncertain.

In greater China, it cancelled all shipments to wholesale partners in February and said it plans to clear excess inventory through its own channels during the rest of the year.

It expects sales in greater China in the first quarter to fall by between 800 million and a billion euros, and operating profit to decline by between 400 million and 500 million.

While Adidas' supply chain has faced disruptions, most of its factories in China are operating again. Its global sourcing activities have not been hit so far.

Adidas forecast currency-neutral sales to increase by between 6 and 8 per cent for the full year and for its operating margin to rise by between 10.5 and 11.8 per cent, but said the outlook did not include any impact from the novel coronavirus outbreak.

Adidas said it remained "fully confident" about its future growth prospects due to its strong positioning in an attractive industry, despite the temporary challenges posed by the virus outbreak.

Fourth-quarter sales rose a currency-adjusted 10 per cent to 5.84 billion euros, while operating profit came in at 245 million euros, missing analysts' mean forecasts of 5.88 billion and 288 million euros respectively.

Currency-neutral sales grew 18 per cent in greater China, 10 per cent in North America and 14 per cent in Europe. REUTERS