March 11, 2020 / 6:44 AM / 3 months ago

Adidas warns of big coronavirus hit to China sales

FILE PHOTO: A woman wearing a face mask walks past a banner advertising new Adidas store, as the country is hit by an outbreak of the novel coronavirus, in Beijing, China February 20, 2020. REUTERS/Tingshu Wang

BERLIN (Reuters) - German sportswear maker Adidas (ADSGn.DE) expects first-quarter sales to drop by up to 1 billion euros (882 million pounds) in greater China due to the coronavirus and while business is picking up there it is now being hit in Japan and South Korea.

China accounted for 20% of Adidas sales in 2018. It sells its products from about 12,000 stores in China, most franchises plus less than 500 of its own stores. Almost a fifth of its shoes and apparel are produced in the country.

Adidas warned last month that its business in the greater China area had dropped by about 85% year-on-year in the period since Chinese New Year on Jan. 25.

On Wednesday, it said it had started to see a “slight improvement” in business activity in greater China, while shopper traffic was now deteriorating in Japan and South Korea, and the impact on other countries was uncertain.

In greater China, it cancelled all shipments to wholesale partners in February and it said it plans to clear excess inventory through its own channels during the rest of the year.

It expects sales in greater China in the first quarter to fall between 800 million and 1 billion euros and operating profit to decline between 400 million and 500 million.

While its supply chain has faced disruptions, Adidas said the majority of its factories in China were operating again and its global sourcing activities had not been hit so far.

Adidas forecast currency-neutral sales to increase between 6% and 8% for the full year and for its operating margin to rise between 10.5% and 11.8%, but said the outlook did not include any impact from the coronavirus outbreak.

Fourth-quarter sales rose a currency-adjusted 10% to 5.84 billion euros, while operating profit came in at 245 million euros, both shy of analysts’ mean forecasts for 5.88 billion euros and 288 million euros respectively.

Reporting by Emma Thomasson; editing by Thomas Seythal and Douglas Busvine

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