Adidas Warns On Guidance, Inventory Buildup, For The Second Time In Three Months

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by Tyler Durden
Friday, Oct 21, 2022 - 02:29 PM

If Adidas shoes are any type of economic indicator, there's pain ahead.

That's because the company warned this week that "unsold goods are piling up" as demand has weakened both in China and in Western markets, according to Bloomberg. The company's stock was clipped to the tune of 10% on Thursday after the retailer issued the warning.

Adidas is still dealing with issues leftover from former Chief Executive Officer Kasper Rorsted, who left the company in the midst of a PR crisis with rapper Kanye West, who has now found himself to be public enemy #1 with the mainstream media. 

His shoes, the Yeezy line, could now be in jeopardy, the report notes, and the stock has given up all of the gains it tacked on during the six years that Rorsted was CEO. The company sports a market cap that is now about 15% that of Nike's. 

It also marks the second time the company has warned in just three months. Adidas says full year revenue will be up only mid single digits instead of high single digits for the year.

Adidas attributed the warning to "a deterioration in store traffic trends in Greater China and a slowdown in demand in western markets since September". China was once the company's largest area of growth, the report says. But consumer boycotts and Covid restrictions have pressured the company. 

Like many other companies we have been writing about over the last 3 months, suffering the "bullwhip" effect, the company is predicting an "overhang of inventory" as a result. 

And it doesn't look like things are going to get better anytime soon. Piral Dadhania of RBC said in a note last week that the company is probably only "part-way through in lowering earnings expectations". A new incoming CEO could wind up abandoning the company's financial targets through 2025, Dadhania said.