In the third quarter of FY22, Adidas’ currency-neutral revenues increased 4 per cent. While the company experienced high-single-digit top-line growth during the first two months of the period, deteriorating traffic trends in Greater China as well as slowing consumer demand in major Western markets weighed on the revenue development in September. In addition, the company’s decision to suspend its own operations in Russia at the end of Q1 significantly reduced revenues by more than €100 million during the third quarter, particularly impacting the company’s direct-to-consumer (DTC) business.
Leading global sportwear brand Adidas has reported 11 per cent revenue growth to €6.408 billion in the third quarter (Q3) of fiscal 2022 (FY22), compared to €5.752 billion in Q3 FY21. The company’s Q3 FY22 operating profit was €564 million, with an operating margin of 8.8 per cent, compared to €672 million and 11.7 per cent in the third quarter of fiscal 202
From a channel perspective, in Q3 FY22, the company’s top-line development was driven by growth in DTC where currency-neutral sales grew 6 per cent year-on-year (YoY). Excluding Russia/CIS, revenues in the company’s own distribution channels were up at a double-digit rate, reflecting the successful sell-through of Adidas’ products. Within DTC, the company’s e-commerce revenues increased 8 per cent driven by strong double-digit increases in Europe, Middle East, Africa (EMEA), North America, and Latin America, Adidas said in a press release.
From a category perspective, in Q3 FY22, revenue growth was the highest in Adidas’ strategic growth categories football and running, both growing at strong double-digit rates. On the lifestyle side, the further scaling of the successful Forum and Ozweego franchises led to strong double-digit growth for both product families.
From a regional perspective, in Q3 FY22, revenue growth was driven by the company’s Western markets and Asia-Pacific (APAC), which combined continued to grow at a double-digit rate (12 per cent). In EMEA, revenues grew 7 per cent despite the loss of revenue in Russia/CIS. Revenues in North America increased 8 per cent during the quarter driven by a double-digit increase in the company’s DTC channel. In APAC and Latin America, revenue growth accelerated compared to Q2, reaching 15 per cent and 51 per cent respectively, YoY. While the company’s own retail revenues in Greater China increased 7 per cent in the third quarter of FY22, reflecting a robust sell-out, the significant product takebacks reduced the company’s sell-in and resulted in a revenue decline of 27 per cent for the market as a whole during the three-month period.
In Q3 FY22, Adidas’ gross margin in the third quarter declined by 1.0 percentage points to 49.1 per cent, compared to 50.1 per cent in Q3 FY21. Other operating expenses grew 20 per cent to €2.676 billion during the quarter, compared to €2.237 billion in Q3 FY21. The majority of this increase was driven by the previously announced one-off costs and currency movements. The company’s net income from continuing operations was €66 million in Q3 FY22, compared to €479 million in Q3 FY21. This amount differs from the preliminary figure published on October 20, 2022, due to negative tax implications in the third quarter related to the company’s decision to terminate the Adidas Yeezy partnership.
In the first nine months of 2022, revenues increased 1 per cent on a currency-neutral basis driven by double-digit growth in North America and Latin America as well as high-single-digit growth in EMEA. For the first nine months of 2022, the revenues grew 8 per cent to €17.306 billion, compared to €16.096 billion in the first nine months of FY21. The company’s gross margin decreased by 1.5 percentage points to 49.7 per cent during the first nine months of 2022, compared to 51.2 per cent in the first nine months of 2021. Adidas generated an operating profit of €1.393 billion during the first nine months of 2022, compared to €1.920 billion in 2021, resulting in an operating margin of 8 per cent, compared to 11.9 per cent in 2021. For the first nine months of 2022, net income from continuing operations reached €736 million, compared to €1.369 billion in the first nine months of 2021, reflecting one-off costs occurred in the third quarter of the year totaling almost €300 million.
In Q3 FY22, inventories increased 72 per cent to €6.315 billion, compared to €3.664 billion in Q3 FY21, while the operating working capital increased 34 per cent to €6.201 billion, compared to €4.616 billion in Q3 FY21.
Adidas’ adjusted net borrowings on September 30, 2022, amounted to €6.397 billion, compared to €3.260 billion on September 30, 2021.
On October 20, 2022, Adidas had reduced its full year guidance as a result of the further deterioration of traffic trends in Greater China, higher clearance activity to reduce elevated inventory levels as well as total one-off costs of around €500 million, which are expected to negatively impact the company’s net income from continuing operations in 2022. Following the decision on October 25, 2022, to terminate the Adidas Yeezy partnership, Adidas now incorporates the related top- and bottom-line impact into its guidance for FY 2022, reflecting the high seasonality of the Adidas Yeezy business geared towards the fourth quarter. Consequently, Adidas now expects currency-neutral revenues for the total company to grow at a low-single-digit rate in 2022. The company’s gross margin is now expected to be around 47 per cent in 2022, while its operating margin is forecast to be around 2.5 per cent in 2022. The net income from continuing operations is expected to reach a level of around €250 million. In 2023, the company expects the non-recurrence of the one-off costs of around €500 million occurred in 2022 to have a positive impact on the net income development in the same magnitude.
Fibre2Fashion News Desk (DP)
