Adidas saw its net income in the first quarter plummet 97% as the German sportswear and sneaker giant felt an outsized impact from the coronavirus pandemic that has closed the vast majority of its stores across the globe. It also forecasted that the worst has not yet come for the company.
According to Adidas, more than 70% of its stores remain closed around the world. That has led the company to lean on its e-commerce platform, which it said saw a 35% increase in sales during the quarter. However, that alone was unable to stem the decline of in-store sales. Revenues across the Adidas brand dropped 20%, while Reebok also saw a 12% drop in revenue.
“The first two months of the quarter… everything was really normal. And then we saw dramatic basically falling off the cliff in mid-March,” Adidas CEO Kasper Rorsted told CNBC. “We’re living in unprecedented times, not just for the globe but also for Adidas,” he said on a conference call following the earnings release.
The drastic decline showcases how much impact and importance China and the broader Asian market has had on Adidas’s growth. Sales in Greater China make up 23% of the company’s total sales, and sales in that region fell 58% in the first quarter.
In comparison, the Greater China market represents roughly 15% of Nike’s revenues, per its most recent earnings report released in March 2020, while the bulk of its business comes from North America. While Nike saw a 5.2% decline in its Greater China sales in its last quarter, revenue for the company still rose 5% with growth across the rest of the world.
Rorsted warned that the company expected the coronavirus pandemic would hit it even harder in the second quarter, as sales were lagging in areas even where stores began to reopen. Adidas forecasted that sales would decline by 40% year-over-year in the second quarter.
“When people have been in quarantine for six or eight weeks, it takes some time for people to return to normal,” he said on a conference call. However, Rorsted said he is optimistic that China will return to double-digit growth rates in the second half of the year.