[Overseas Stocks Spotlight] "Adidas Turns to Q2 Loss Due to COVID-19... Q3 Improvement Possible"

[Asia Economy Reporter Eunmo Koo] Adidas has turned to a loss in the second quarter of this year due to the impact of the novel coronavirus disease (COVID-19). However, performance is expected to improve from the third quarter, with the second quarter being the bottom.

Adidas reported sales of 3.58 billion euros in the second quarter of this year, a 35.0% decrease compared to the same period last year, and an operating loss of 330 million euros. Sales exceeded consensus by 10.3%, but operating profit fell short by 8.4%.

Researcher Soyeon Jung of Ebest Investment & Securities explained in a report on the 9th, "Due to the spread of COVID-19, clothing consumption shrank as outdoor activities decreased, and except for the Asia region, the decline in sales widened from the first to the second quarter, deepening the slump." The year-on-year sales growth rates by region in the second quarter were South America -64%, emerging markets -60%, Europe -40%, North America -38%, and Asia-Pacific -16%. The China region showed a negative growth of -58% in the first quarter but recovered with double-digit growth in May and June.

From the end of the first quarter to April, more than 70% of all offline stores in almost all countries except the Asia region were closed, causing offline sales to drop significantly. Researcher Jung analyzed, "However, online sales, which account for about 30% of total sales, grew by 93%, offsetting the sales slump." She added, "Offline stores began reopening from May, and as of the end of June, about 83% of stores were operating again."

The gross profit margin in the second quarter was 51.0%, down 2.5 percentage points from the same period last year. Researcher Jung explained, "This is due to an unfavorable price mix effect caused by expanded promotions and an increase in inventory-related provisions." Regarding the sharply deteriorated operating profit turning to a loss, she explained, "This reflects a one-time loss of about 250 million euros due to COVID-19, consisting of impairments related to offline retail stores and the Reebok brand, as well as costs related to inventory and bad debts."

However, it is analyzed that performance can improve from the third quarter, with the second quarter being the bottom. Researcher Jung predicted, "Offline store closures have mostly been resolved since June. The operating environment is improving month by month, and online channel growth continues, so the third quarter is expected to grow compared to the second quarter and rebound." Accordingly, operating profit is estimated to improve by about 1 billion euros to 670 million euros.