Terrible First Quarter
German based sportswear manufacturer Adidas AG (ETR: ADS) has reported plunged results for the first quarter of the year ending March 31. The company attributes losses to global breakout of deadly coronavirus which has brought economies to standstill more so in the sporting industry where the company thrives in.
In the first quarter, operating profit for Adidas significantly declined to 65 million euros, a value way less than the 328 million euros estimated by analysts for the company.
Similarly, total sales in the quarter declined by 19% generating 4.75 billion euros, this also fell lower than 4.85 billion euros which had been predicted by analysts.
Since breakout of the pandemic stock of the Europe’s largest Sportswear Company has plunged by more than 80%.
Increasing Inventories
According to CEO of Adidas Kasper Rorsted, they have been facing an increase in inventories since the pandemic began, many of their clients have been returning goods, in addition, the company hasn’t been receiving much buy orders.
The sportswear maker says, in the first quarter it received back unsold stock from China worth around 250 million euros. Additionally, many clients from China cancelled their orders with others having a high risk of default.
Rorsted says lockdown in various part of the world is greatly to blame, as per the time Adidas was announcing its first quarter results, 70% of their stores worldwide remained closed. The company said this scenario had brought 60% of its activities to a halt.
Nonetheless, Rorsted said in the last week, 20 Adidas stores across Europe had re-opened resuming full operations. He was not sure when the company will get back on its feet but the CEO predicted by the end of second quarter things may be back to normal.
“We’re not going to see an imminent return to what we had before. One bright spot is that the pandemic is increasing interest in fitness and health,” added Rorsted further acknowledging the company has been recording a rapid increasing demand of yoga mats.
Adidas has strong reasons to believe second quarter results may even be worse in comparison to just reported first quarter results. The company says if China doesn’t get a full rebound soon, then most definitely results will plunge deeper for the current quarter.
Adidas Secures a Government Loan
The pandemic left Adidas few options so the company decided to secure a 2.4 billion euro government backed loan on April 14. Under the conditions of the loan, Adidas was ordered to cancel divided payment.
Before the company secured this loan, the balance sheet of Adidas had deteriorated by more than 1.4 billion in the first quarter.
