Adidas shares jump as new chief says China business has turned the corner

The new chief executive of Adidas said the sportswear maker’s struggling Chinese business has turned a corner and that it was starting to bring its high level of inventory under control. The statement sent shares in the group to their highest level this year.

Bjørn Gulden, who Adidas poached from Puma in January, said on Friday that the company was noting “a positive trend” in China for the first time in two years. He added that sales to consumers at its retail partners in the country rose at double-digit rates in the first quarter.

The improvement provides some rare cheer for investors in the German group, which in February warned it might report its first annual loss in more than three decades after ditching its highly profitable Yeezy trainers brand, closing its Russian operations and suffering a backlash in China.

The trend in China was “a little bit better than I expected”, Gulden said, adding that he was “very optimistic” about the medium-term outlook. However, he cautioned it would be difficult for the company to return to the level of sales and profit in the country before it was swept up in a backlash against western brands in 2019.

Shares in Adidas surged more than 8 per cent on Friday, but the stock remains down 10 per cent over the past 12 months.

Adidas did not provide an update on what it will do with the unsold stock of Yeezy trainers, which it developed with US rapper Kanye West. The company severed ties with West when he caused an outcry over antisemitic remarks.

The unsold Yeezy inventory climbed by €100mn over the quarter to €500mn as Adidas took delivery of shoes it had ordered shortly before it ended relations.

The overall performance showed that “the brand heat is improving” as sales of Gazelle and Samba shoes were partly offsetting the lost Yeezy revenue, said Adam Cochrane, analyst at Deutsche Bank.

“This is a company which has regained some of its energy,” Cochrane wrote in a note.

Gulden’s encouraging verdict on China came as Adidas reported that first-quarter operating profits tumbled from a year earlier to €60mn. But that exceeded analysts’ expectations that profits would dwindle to just €15mn. Overall sales also exceeded forecasts, falling 1 per cent versus the 4 per cent drop analysts had forecast.

In China, Adidas has replaced its local management and wants to win back market share with patriotic clothing lines that are designed and produced locally.