Adidas, the German sportswear company, warned on Wednesday of a 1 billion euro ($1.2 billion) hit to sales due to factory closures in COVID-affected Vietnam and supply chain bottlenecks, which it expects to affect business into next year. The company’s stock dropped more than 5% after it became the latest large corporation to report production interruptions and late delivery as the world economy recovers from the pandemic’s lamest consequences.
Adidas had lost ability for 100 million items in the second half of 2021 due to plant closures in Vietnam from July to September and a progressive re-opening since October, according to finance chief Harm Ohlmeyer.
This was aggravated by container shipping delays at both origin and destination ports, with a third of shipments leaving Asia experiencing significant delays, according to Ohlmeyer.
Even after mitigation strategies, the loosing ability will cost Adidas 1 billion euros in total sales between the fourth and first quarters of 2021 and 2022, with the procurement system expected to be mostly back to normal by the end of this year.
Puma, a competitor, has also alerted that supply bottlenecks will result in a product shortage in 2022.
Vietnam typically accounts for 28% of Adidas sourcing, with its manufacturers primarily producing shoes for the corporation.Adidas was able to shift production to China and Indonesia for 30 million units, according to Ohlmeyer, and is redeploying stock from Asian markets currently under lockdown, as well as using more air freight to get products to customers on time.
In addition, the company is planning to reduce the number of discounted products it offers and raise prices by about 5% in 2022.
Adidas expects “flattish” fourth-quarter sales, implying 17-18% year-on-year sales growth, according to Chief Executive Kasper Rorsted. Ohlmeyer stated that the company anticipates sales growth of at least 8-10 percent in 2022.
Third-quarter sales increased by a currency-neutral 3% to 5.752 billion euros, while operating profit fell 8.5 percent to 672 million euros, falling short of analysts’ expectations.
Sales in Greater China fell 15% as a result of renewed pandemic restrictions and the ongoing fallout from a consumer boycott that Adidas has expected to face in the country since March.
Western brands have been chastised in China for stating that they will not source cotton from Xinjiang following reports of human rights violations against Uyghur Muslims. Beijing denies any wrongdoing.
Adidas has started up an action plan in an attempt to resurrect its wealth in China, which has long been its most essential booming industry.
