Pandemic supply chain problems could cost Adidas €500m in sales this year

Adidas has warned that supply chain constraints caused by the pandemic could cost it as much as €500m in sales by the end of the year.

The disruption has meant that the world’s largest sportswear maker was unable to produce enough apparel and shoes to meet demand, its chief financial officer Harm Ohlmeyer told journalists on Thursday.

Adidas nonetheless raised its 2021 outlook for the second time this year after sales rose 52 per cent year on year in the second quarter to €5.08bn.

The company said that first-half sales excluding Reebok, which it is selling, were slightly above the level in 2019, before the pandemic struck.

Without the supply chain delays, the recovery would be even faster. The company expects to lose sales of more than €500m by the end of the year because of the hit to production — more than 2 per cent of sales forecast by analysts for 2021.

“The expected impact is already built in to our full-year guidance,” said chief executive Kasper Rorsted, adding that revenue would rise up to 20 per cent this year, compared with earlier guidance of “a high-teens [growth] rate”. He also said that net income from continuing operations would be between €1.4bn and €1.5bn, up from earlier expectations of between €1.25bn and €1.45bn.

Shares in Adidas were down roughly 4 per cent by midday trading in Frankfurt on Thursday.

Since mid-July, the company has been hit by a government-imposed lockdown of factories in Vietnam, a key country for the production of Adidas shoes.

“We expect the situation in Vietnam to start improving later this month, leading to a largely operational sourcing network at the end of the third quarter,” said Rorsted.

While Adidas is moving production to other countries, “the current interruptions will have a negative impact on our business in the second half, as we will not be able to fully cater to the strong demand for our products,” he added.

The factory closures in Vietnam have come on top of existing logistical problems, said Rorsted. “The long lasting pandemic . . . has led to a significant capacity reduction in both vessels and containers,” he said, adding that higher freight rates and delays were the consequence.

“With sports taking back centre stage this summer, we delivered a very successful quarter,” said Rorsted, pointing to the fact that sales in the football and outdoor categories grew at triple-digit rates.

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Second-quarter operating profit rose to €543m, compared with an operating loss of €263m a year earlier, when retailers around the world were forced to close during the first wave of the pandemic. Both revenue and operating profit in the second quarter were better than expected by analysts.

Excluding currency effects, sales in Europe and northern America nearly doubled in the second quarter. In China, however, Adidas suffered a 16 per cent year-on-year decline between April and June. Western brands, including Adidas, have suffered from criticism in the country over previous statements about human rights abuses against Uyghur Muslims, which are denied by Beijing.