"Adidas: Stock Momentum Weakened by COVID-19 to Continue for the Time Being"

[Asia Economy Reporter Eunmo Koo] An analysis has emerged that Adidas' brand fundamentals remain solid. However, it is expected that the overall stock price momentum in the industry will continue to weaken for the time being due to the impact of the novel coronavirus disease (COVID-19).

According to Samsung Securities on the 15th, Adidas' sales in the fourth quarter of last year reached 5.2 billion euros, a 10% increase compared to the same period last year, meeting market expectations. The core brand Adidas grew by 10.9%, and Reebok by 7.4%. By region, Western Europe grew 14.3%, North America 10%, Asia Pacific 13.3%, Latin America 21.7%, and Russia 6%, achieving double-digit growth in most regions.

Im Eun-hye, a researcher at Samsung Securities, explained in a report on the same day, "Sales rebounded in the North American region as supply disruption issues were resolved, and year-end consumption in China showed positive signs." However, she added, "Operating profit margin recorded 4.2%, falling short of market expectations due to reinvestment in the European market and currency effects."

After the earnings announcement, market attention has shifted to the impact of COVID-19. Adidas stated that sales in the Greater China region in the first quarter of this year are expected to decline by about 10% year-on-year, with sales estimated at 800 million to 1 billion euros and operating profit at 400 to 500 million euros. Although half of the approximately 12,000 stores in China have reopened, there has been no noticeable recovery in visitor numbers. Japan and South Korea are also expected to see a sales decline of 100 million euros in the first quarter. In Europe, while there has been no sharp drop in sales yet, some sales slowdown has been observed.

It is forecasted that if major sports events such as Euro 2020 and the Olympics are postponed due to this situation, sales could decline by approximately 50 to 70 million euros. On the production side, currently, production in China accounts for about 19% of the total, and although there are no supply disruption issues, efforts to diversify the supply chain are continuously underway.

While fundamentals are solid, the prolonged COVID-19 situation is considered a concern. Researcher Im said, "There is no doubt about Adidas' brand momentum or competitiveness in the global sportswear market." However, she predicted, "The increase in market uncertainty and the slowdown in global consumption, along with the deterioration of the macro environment, will lead to a weakening of stock price momentum across the sportswear industry this year."