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The international sportswear manufacturer has posted currency-neutral revenues up 6% in 2019, but expects gross margin in 2020 to be significantly impacted by unfavourable currency developments as well as negative effects from higher sourcing costs.
In 2019, Adidas’ sales increase was driven by a 7% improvement at brand adidas, reflecting high-single-digit sales growth in Sport Inspired as well as a mid-single-digit gain in Sport Performance. The Reebok brand returned to growth in 2019, with currency-neutral revenues up 2% versus the prior year. This increase was driven by double-digit growth in its home market North America. The combined currency-neutral sales of the adidas and Reebok brands continued to expand at double-digit rates in both Asia-Pacific (10%), driven by a 15% increase in Greater China, and Emerging Markets (13%). North America currency-neutral revenues were up 8%, despite the supply chain shortages, which are said to have weighed on the region’s growth particularly in the first half of the year. Currency-neutral revenues in Latin America were up 7% and sales in Russia/CIS increased 8%, despite tough prior year comparisons related to the 2018 FIFA World Cup. Europe is reported to have returned to growth in 2019 with a currency-neutral sales increase of 3%.
Operating margin expanded further to 11.3%; gross margin increased 0.2 percentage points to 52.0% (2018: 51.8%). “Lower sourcing costs, positive currency developments as well as a better product and channel mix more than offset higher air freight costs to mitigate the supply chain shortages and a less favourable pricing mix”, said the Group. Net income from continuing operations increased 12% to €1.918 billion in 2019, up from €1.709 billion in 2018.
Sourcing and 2020 outlook
Adidas projects sales to increase at a rate of between 6% and 8% on a currency-neutral basis in 2020 driven by growth in all market segments, with sales projected to grow at a low-double-digit rate in North America and Russia/CIS, currency-neutral revenues in Asia-Pacific and Emerging Markets are expected to grow at a high-single-digit rate. Sales in Europe and Latin America are forecast to improve at a mid-single-digit rate in currency-neutral terms.
In 2020, the gross margin is forecast to decline slightly compared to the prior year level of 52%, but it does not reflect the impact of the coronavirus outbreak. Adidas expects the gross margin development to be significantly burdened by the adverse impact from unfavourable currency developments as well as negative effects from higher sourcing costs. While the Group’s business in Greater China performed strongly in the first three weeks of 2020, Adidas said it has been experiencing a material negative impact on its operations due to the outbreak of the coronavirus since then. Stores and warehouses are said to be gradually opening and consumer traffic slowly picking up.
“As the situation keeps evolving, the further recovery in Greater China, the extent of spill over into other countries as well as the availability of raw materials remain largely uncertain. In light of these uncertainties, the overall impact of the coronavirus outbreak on the company’s business in 2020 cannot be quantified reliably at this point in time. Despite the temporary challenges posed by the coronavirus outbreak, the company remains fully confident about its future growth prospects thanks to its healthy fundamentals and its strong positioning within an attractive industry”, said Adidas.