Adidas says China recovery will power growth

Adidas expects its key Chinese market to sustain a recovery this year, in a boost for the world’s second-largest sportswear brand as it struggles with a slowdown in the US.

The German company said on Wednesday that Chinese sales were expected to grow at a double-digit rate this year, after surging by 37 per cent in the fourth quarter of 2023.

That growth is expected to cushion the impact of challenging trading in the US, and comes after sinking Chinese sales helped push Adidas into a deep crisis in 2022.

Reporting full-year results on Wednesday, Adidas said annual sales in China rose 8 per cent year on year, adjusted for currency swings. Until 2019, the country had been the most important driver of growth and profits, but sales collapsed between 2020 and 2022 amid protracted lockdowns and calls to boycott western brands over their stance on Xinjiang cotton.

“2023 was a turning point for the business [in China],” chief executive Bjørn Gulden told journalists on Wednesday, adding that Adidas increased sales despite closing almost a third of its stores in China.

“We feel a lot more comfortable about China than we did 12 months ago,” he said, adding that the growth potential was “much higher” than the full-year growth seen in 2023.

In the US, another core market, Adidas is bracing itself for another difficult year, with demand and prices burdened by high levels of unsold inventory. After a 21 per cent year-on-year revenue drop in the fourth quarter, sales in the US are expected to fall at a mid single-digit rate in 2024.

Overall sales in 2024, adjusted for currency effects, are expected to rise at a mid single-digit rate after stagnating last year. Gulden said sales momentum would accelerate during the course of the year, with the second half expected to be stronger than the first, and the recovery in the US expected to lag behind other key markets by six to nine months.

Shares in Adidas, which have risen 32 per cent over the past 12 months, were flat in morning trading.

Operating profits are expected to come in at about €500mn this year, up from €268mn in 2023, Adidas said, confirming preliminary results published earlier this year.

Collapsing sales in China were one of three factors that in 2022 pushed Adidas into its worst crisis in three decades. It was among the western companies that faced a consumer backlash in the country for shunning Xinjiang cotton over human rights concerns, which “destroyed growth for all western brands” in China, Gulden said on Wednesday.

In the same year, the brand also axed its bestselling Yeezy brand following antisemitic remarks by its business partner, US rapper and fashion designer Kanye West, and pulled out of Russia after Moscow’s full-scale invasion of Ukraine.

In the years before the pandemic, the German company had been extremely successful in China. In 2019 it boasted high margins as well as strong growth and, according to analysts, outperformed western rivals such as Nike and Puma.