Sports wear giant adidas saw net profits slump an eye-watering 97 percent in the first quarter of 2020, the company reported today, as ecommerce operations failed to blunt the impact of the coronavirus pandemic.
“Our results for the first quarter speak to the serious challenges that the global outbreak of the coronavirus poses even for healthy companies,” said adidas CEO Kasper Rorsted, as he announced the results Monday.
Net income from continuing operations was €20 million (£17.3 million) down dramatically from €631 million in the same period last year.
adidas is “accelerating our own-retail and digital business” in a bid to help weather the storm, as online channel growth remains strong.
The devastating collapse in profits came despite continued strong (currency-neutral) growth of 35 percent in e-commerce; adidas’ only channel that has remained fully operational in most parts of the world. Over 70 percent of the company’s global store base meanwhile remains closed.
adidas Profits Crash: Net Cash Shrinks Rapidly
The company tapped existing credit lines, “both committed and uncommitted” to help keep operating. The company had a cash position of €1.975 billion at March 31, 2020, around two-thirds of which is held at adidas AG and hence is directly accessible. “This represents a deterioration of more than €1.4 billion compared to the net cash position at year-end 2019.”
Thing are going to get worse before they get better, the company suggested, saying it is “making use of the flexibility in its operating cost base but largely refraining from measures that would jeopardize future prospects.”
As a result, both top- and bottom-line declines in the second quarter of 2020 are expected to be “more pronounced” than those recorded in Q1. adidas said it expects operating results to be negative in Q2.
Inventories increased 32 percent to €4.334 billion, as the company’s products piled up unsold. There was a bright spot: the company’s top line continued to sequentially recover in Greater China in the first three weeks of April, and global e-commerce revenues showed “another significant acceleration from 55% currency-neutral growth recorded in March.”
CEO Kasper Rorsted tried to strike a positive note, saying: “Despite the current situation, I am confident about the attractive long-term prospects this industry provides for adidas. Consumers are developing an increased appreciation of well-being. They want to stay fit and healthy through sports.”
The company is scrambling to boost its own digital sales channels, he said, rather than relying on third-party partners: “Our focus on accelerating our own-retail and digital business will serve us even better in the future. We are well positioned as a global company with strong brands.”
How can retail companies like adidas use technology to rapidly pivot their retail and digital businesses in this climate? We’d welcome your insight. Contact ed dot targett at cbronline dot com to discuss more.